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Economics

Time Inconsistency in Government Inflation Policy

Quick fact

The theory of time inconsistency was co-developed by Finn Kydland and Edward Prescott, who won the 2004 Nobel Prize in Economics for this and other contributions to business cycle theory.

Why this is interesting

Imagine you promise yourself you'll study tomorrow, but when tomorrow comes, you procrastinate—and then wonder why you never get ahead. Governments face the same kind of temptation with inflation, and it affects your wallet.