Munich Personal RePEc Archive

Hyperinflation, disinflation, deflation, etc.: A unified and micro-founded explanation for inflation

Harashima, Taiji (2007): Hyperinflation, disinflation, deflation, etc.: A unified and micro-founded explanation for inflation.

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Abstract

In this paper, I present a unified and micro-founded explanation for various types of inflation without assuming ad hoc frictions or irrationality. The explanation is similar to the conventional inflation theory in the sense that an independent central bank can control inflation and also similar to the fiscal theory of the price level in the sense that a source of inflation lies in the behavior of government. Inflation accelerates or decelerates through the simultaneous optimization of a government and the representative household if their time preference rates are heterogeneous. This inflation acceleration mechanism will be prevented from working if a central bank is truly independent.

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