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

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.

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Year of publication:	2006
Authors:	Armenter, Roc ; Bodenstein, Martin
Institutions:	Federal Reserve Board (Board of Governors of the Federal Reserve System)
Subject:	Inflation (Finance) \| Econometric models \| Equilibrium (Economics) \| Monetary policy

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Extent:	text/html application/pdf
Series:	International Finance Discussion Papers.
Type of publication:	Book / Working Paper
Language:	English
Notes:	Number 860
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10005498813