We describe a class of monetary economies that generate persistent episodes of high and low inflation. In this class of economies, variations in expectations can lead private agents to take actions which then make it optimal for the monetary authority to validate those expectations. We think...

In empirical studies of the CAPM, it is commonly assumed that, (a) the return to the value-weighted portfolio of all stocks is a reasonable proxy for the return on the market portfolio of all assets in the economy, and (b) betas of assets remain constant over time. Under these assumptions, Fama...