Eggertsson, Gauti; Giannoni, Marc P. - Federal Reserve Bank of New York - 2013
A rich literature from the 1970s shows that as inflation expectations become more and more ingrained, monetary policy … loses its stimulative effect. In the extreme, with perfectly anticipated inflation, there is no trade-off between inflation … anticipated inflation when the economy is in a liquidity trap. In this paper, we reconcile these two views by showing that while …