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"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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Book Details
Edition Notes
"April 2002."
JEL no. E5, E61, E63.
Includes bibliographical references (p.41-42).
Electronic access limited to Binghamton University faculty, staff and students for instructional and research purposes only.
Electronic version available via the Internet at the NBER World Wide Web site.
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