Expectation traps and monetary policy
By: Stefania Albanesi, V. V. Chari, and Lawrence J. Christiano.
Contributors: Chari, V. V.; Christiano, Lawrence J.
Series: Federal Reserve Bank of Minneapolis, Research Department staff report ;; 319; Staff report (Federal Reserve Bank of Minneapolis. Research Dept. : Online) ;; 319.
Publisher: Federal Reserve Bank of Minneapolis
Published: 2003
Place of publication: [Minneapolis, Minn.]
Language: eng
Format: Electronic resource
Subjects: Monetary policy -- Econometric models.; Inflation (Finance) -- Econometric models.
Description: "Why is inflation persistently high in some periods and low in others? The reason may be absence of commitment in monetary policy.  In a standard model, absence of commitment leads to multiple equilibria, or expectation traps, even without trigger strategies.  In these traps, expectations of high or low inflation lead the public to take defensive actions, which then make accommodating those expectations the optimal monetary policy.  Under commitment, the equilibrium is unique and the inflation rate is low on average.  This analysis suggests that institutions which promote commitment can prevent high inflation episodes from recurring"--Federal Reserve Bank of Minneapolis web site.
Notes: Also available in print.
Includes bibliographical references.
Title from PDF file as viewed on 11/17/2004.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.