The Expectations Trap Hypothesis

Lawrence Christiano () and Christopher J. Gust

No 7809, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We explore a hypothesis about the take-off in inflation that occurred in the early 1970s. According to the expectations trap hypothesis, the Fed was pushed into producing the high inflation out of a fear of violating the public's inflation expectations. We compare this hypothesis with the Phillips curve hypothesis, according to which the Fed produced the high inflation as an unfortunate by-product of a conscious decision to jump-start a weak economy. Which hypothesis is more plausible has important implications for what needs to be done to prevent other inflation flare-ups.

JEL-codes: E1 (search for similar items in EconPapers)
Date: 2000-07
Note: EFG
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Working Paper: The expectations trap hypothesis (2000)
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