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The expectations trap hypothesis

Lawrence Christiano () and Christopher Gust

No 4, Working Papers (Old Series) from Federal Reserve Bank of Cleveland

Abstract: The authors examine the inflation take-off of the early 1970s in terms of the expectations trap hypothesis, according to which fear of violating the public?s inflation expectations pushed the Fed into producing high inflation. This interpretation is compared with the Phillips curve hypothesis, according to which the Fed produced high inflation as the unfortunate byproduct of a conscious decision to jump-start a weak economy. Which hypothesis is more plausible has important implications for what should be done to prevent future inflation flare-ups.

Keywords: Phillips curve; Economic conditions - United States; Inflation (Finance) (search for similar items in EconPapers)
Date: 2000, Revised 2000
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