Expectation traps and monetary policy
by Stefania Albanesi
"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.
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Expectation traps and monetary policy
2003, Federal Reserve Bank of Minneapolis
Electronic resource
in English
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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.
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