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Memories of high inflation

Author

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  • Ehrmann, Michael
  • Tzamourani, Panagiota
Abstract
Inflation has been well contained over the last decades in most industrialized countries. This implies, however, that memories of high inflation are likely to fade, because over time larger parts of the population have never experienced high inflation, whereas those who have might forget. This paper tests whether memories of high inflation affect agents’ preferences about the importance attached to price stability, using a large database covering over 52,000 survey responses from 23 countries over the years 1981-2000. It finds that memories of hyperinflation are there to last, whereas those of less drastic inflation experiences tend to erode after around 10 to 15 years. The recent decline in the importance attached to price stability does therefore most likely reflect mitigated inflation concerns in an environment of low and stable inflation, but also the consequences of fading memories of high inflation. The longer central banks have successfully delivered price stability, the more important it is for them to engage in a proactive communication, especially with the younger generations, about the merits of low and stable inflation. JEL Classification: D10, E31, E52

Suggested Citation

  • Ehrmann, Michael & Tzamourani, Panagiota, 2009. "Memories of high inflation," Working Paper Series 1095, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20091095
    Note: 203739
    as

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    References listed on IDEAS

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    More about this item

    Keywords

    hyperinflation; inflation aversion; inflation memories; inflation targeting; World Values Survey;
    All these keywords.

    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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