Can U.S. monetary policy fall (again) into an expectation trap?
Roc Armenter () and
No 229, Staff Reports from Federal Reserve Bank of New York
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)
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 Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
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.
Series data maintained by Amy Farber ().