Expectation traps in a new Keynesian open economy model
By: David M. Arseneau.
Series: Finance and economics discussion series ;; 2004-45; Finance and economics discussion series (Online) ;; 2004-45.
Publisher: Federal Reserve Board
Published: 2004
Place of publication: Washington, D.C
Language: eng
Format: Electronic resource
Description: "This paper illustrates that the introduction of a money demand distortion into an otherwise standard New Keynesian Open Economy model generates multiple discretionary equilibria.  These equilibria arise in the form of expectations traps whereby the monetary authority is trapped into validating expectations of the private sector because failing to do so is costly.  One implication of the model is that provided initial inflation expectations are sufficiently anchored the global Friedman rule emerges as an equilibrium under discretion.  It is therefore a time-consistent outcome and hence fully sustainable even in absence of a commitment device or reputational considerations"--Federal Reserve Board web site.
Notes: Also available in print.
Includes bibliographical references.
Title from PDF file as viewed on 8/31/2004.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.