inflationary psychology

Inflationary Psychology

How increased inflation influences the behavior of economic actors. It is commonly believed that people borrow more during high inflation because they wish to have more cash to buy goods and services in case prices continue to rise. Prices then rise anyway because of the increased cash in circulation and higher demand for goods and services. In other words, inflationary psychology predicts that inflation can become self-perpetuating. See also: Behavior Economics.
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inflationary psychology

Consumers' belief that prices will inevitably rise, a belief that drives them to speed up purchases especially of real assets (that is, gold, diamonds, and real estate) and avoid investment in financial assets (that is, stocks and bonds). As a result, the consumers themselves can cause the inflation that they fear will occur.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.
References in periodicals archive ?
Volcker imposed tight money; Reagan's support enabled him to maintain the painful and unpopular policy (the monthly unemployment rate peaked at 10.8 percent) long enough to purge inflationary psychology.
Reagan, Volcker & Krugman
Of course, this is just one example of the damage that an inflationary psychology inflicts on our economy.
Inflation, inflation expectations, and monetary policy
If, through presidential leadership, the United States were to mitigate the inflationary psychology that propelled inflation, economic activity would advance as inflation fell.
Burns believed that an incomes policy would engender a reduction in inflationary psychology, or expectations, as well as inflation itself.
Arthur Burns and inflation
Governors and district bank presidents worried about loss of credibility in the financial markets and the potential renewal of inflationary psychology that was dampened significantly during the Volcker era.
Back from the Brink
I wish it were possible to lay out in advance exactly what conditions have to prevail to portend a buildup of inflation pressures or inflationary psychology. However, the circumstances that have been associated with increasing inflation in the past have not followed a single pattern.
Statement by Alan Greenspan, Chairman, Board of Governors of the Federal Reserve System, before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate, February 26, 1997
And once an inflationary psychology takes hold, it can be difficult and costly to reverse.
A perspective on monetary policy
Angell dissented because he believed that the persisting indications of rising inflation and the related deterioration in inflationary psychology called for a prompt move to tighten monetary policy.
Minutes of the Federal Open Market Committee meeting of May 18, 1993
Instead of trying to manage the business cycle, we have increasingly focused on managing the inflationary psychology of households and businesses.
By striking a balance between money supply and its demand, that is, by providing a relatively stable purchasing power for the dollar, the central bank has done a remarkable job in building its credibility and keeping the inflationary psychology subdued.
Monetary Policy with Humility
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