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The expectations trap hypothesis

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Abstract

We explore a hypothesis about the take-off in inflation that occurred in the early 1970s. According to the expectations trap hypothesis, the Fed was pushed into producing the high inflation out of a fear of violating the public's inflation expectations. We compare this hypothesis with the Phillips curve hypothesis, according to which the Fed produced the high inflation as an unfortunate by-product of a conscious decision to jump-start a weak economy.

Suggested Citation

  • Lawrence J. Christiano & Christopher J. Gust, 2000. "The expectations trap hypothesis," International Finance Discussion Papers 676, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgif:676
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    1. John H. Cochrane, 1999. "A Frictionless View of US Inflation," NBER Chapters, in: NBER Macroeconomics Annual 1998, volume 13, pages 323-421, National Bureau of Economic Research, Inc.
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    More about this item

    Keywords

    Inflation (Finance); Phillips curve; Monetary policy - United States;
    All these keywords.

    JEL classification:

    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models

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