Can U.S. monetary policy fall (again) into an expectation trap?

Roc Armenter () and Martin Bodenstein

No 229, Staff Reports from Federal Reserve Bank of New York

Abstract: We provide a tractable model to study monetary policy under discretion. We restrict our analysis to Markov equilibria. We find that for all parametrizations with an equilibrium inflation rate of about 2 percent, there is a second equilibrium with an inflation rate just above 10 percent. Thus, the model can simultaneously account for the low and high inflation episodes in the United States. We carefully characterize the set of Markov equilibria along the parameter space and find our results to be robust, suggesting that expectation traps are more than just a theoretical curiosity.

Keywords: Equilibrium (Economics); Inflation (Finance); Rational expectations (Economic theory); Monetary policy (search for similar items in EconPapers)
Date: 2005
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr229.html (text/html)
https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr229.pdf (application/pdf)

Related works:
Journal Article: CAN THE U.S. MONETARY POLICY FALL (AGAIN) IN AN EXPECTATION TRAP? (2008)
Working Paper: Can the U.S. monetary policy fall (again) in an expectation trap? (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fednsr:229

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Staff Reports from Federal Reserve Bank of New York Contact information at EDIRC.
Bibliographic data for series maintained by Gabriella Bucciarelli ().