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Does inflation uncertainty increase with inflation?

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  • John E. Golob

Abstract

One of the most important costs of inflation is the uncertainty it creates about future inflation. This uncertainty clouds the decisionmaking of consumers and businesses and reduces economic well-being. Without this uncertainty, consumers and businesses could better plan for the future. According to many analysts, uncertainty about future inflation rises as inflation rises. As a result, these analysts argue that the Federal Reserve could reduce inflation uncertainty by reducing inflation. Other analysts argue that high inflation creates no more uncertainty than low inflation, as long as inflation remains stable. As a result, these analysts argue that high inflation does not necessarily interfere with decisionmaking or reduce economic well-being.> Golob reviews the results of previous research and presents new empirical evidence finding that inflation uncertainty rises with inflation.

Suggested Citation

  • John E. Golob, 1994. "Does inflation uncertainty increase with inflation?," Economic Review, Federal Reserve Bank of Kansas City, vol. 79(Q III), pages 27-38.
    • Handle: RePEc:fip:fedker:y:1994:i:qiii:p:27-38:n:v.79no.3
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    References listed on IDEAS

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    1. Laurence Ball & Stephen G. Cecchetti, 1990. "Inflation and Uncertainty at Long and Short Horizons," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(1), pages 215-254.
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    Inflation (Finance);

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