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

Roc Armenter () and Martin Bodenstein

No 860, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We provide a tractable model to study monetary policy under discretion. We focus on Markov equilibria. For all parametrizations with an equilibrium inflation rate around 2%, there is a second equilibrium with an inflation rate just above 10%. Thus the model can simultaneously account for the low and high inflation episodes in the U.S. We carefully characterize the set of Markov equilibria along the parameter space and find our results to be robust.

Keywords: Inflation (Finance); Econometric models; Equilibrium (Economics); Monetary policy (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
Date: 2006
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Related works:
Journal Article: CAN THE U.S. MONETARY POLICY FALL (AGAIN) IN AN EXPECTATION TRAP? (2008)
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