Expectation Traps and Monetary Policy / Stefania Albanesi, V.V. Chari, Lawrence J. Christiano.

Format:

Book

Author/Creator:

Albanesi, Stefania.

Contributor:

National Bureau of Economic Research.

Chari, V.V.

Christiano, Lawrence J.

Series:

Working Paper Series (National Bureau of Economic Research) no. w8912.

NBER working paper series no. w8912

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2002.

Summary:

Why is it that inflation is persistently high in some periods and persistently low in other periods? We argue that lack of commitment in monetary policy may bear a large part of the blame. We show that, in a standard equilibrium model, absence of commitment leads to multiple equilibria, or expectation traps. In these traps, expectations of high or low inflation lead the public to take defensive actions which then make it optimal for the monetary authority to validate those expectations. We find support in cross-country evidence for key implications of the model.

Notes:

Print version record

April 2002.