search query: @indexterm FINANCIAL POLICY / total: 417
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| Author: | Albanesi, S. Chari, V. V. Christiano, L. J. |
| Title: | Expectation traps and monetary policy |
| Journal: | Review of Economic Studies
2003 : VOL. 70:4(245), p. 715-741 |
| Index terms: | Monetary policy Financial policy Inflation Equilibrium theory |
| Language: | eng |
| Abstract: | The authors try to find answer to the question, why inflation is persistently high in some periods and low in others. The reason may be the 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 make accommodating those expectations the optimal monetary policy. Under commitment, the equilibrium is unique and the inflation rate is low on average. |
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