TY  - JOUR
AU  - Albanesi,Stefania
AU  - Chari,V.V.
AU  - Christiano,Lawrence J.
TI  - Expectation Traps and Monetary Policy
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 8912
PY  - 2002
Y2  - April 2002
UR  - http://www.nber.org/papers/w8912
L1  - http://www.nber.org/papers/w8912.pdf
N1  - Author contact info:
Stefania Albanesi
Federal Reserve Bank of New York
33 Liberty Street
New York, NY 10045
Tel: 212 720 5443
E-Mail: stefania.albanesi@gmail.com

Varadarajan V. Chari
Department of Economics
University of Minnesota
1035 Heller Hall
271 - 19th Avenue South
Minneapolis, MN 55455
Tel: 612/626-5171
Fax: (612) 624-0209
E-Mail: varadarajanvchari@gmail.com

Lawrence Christiano
Department of Economics
Northwestern University
2001 Sheridan Road
Evanston, IL 60208
Tel: 847/491-8231
Fax: 847/491-7001
E-Mail: l-christiano@northwestern.edu
AB  - Why is it that inflation is persistently high in some periods and persistently low in other periods? We argue that lack of commitment in monetary policy may bear a large part of the blame. We show that, in a standard equilibrium model, absence of commitment leads to multiple equilibria, or expectation traps. In these traps, expectations of high or low inflation lead the public to take defensive actions which then make it optimal for the monetary authority to validate those expectations. We find support in cross-country evidence for key implications of the model.
ER  -