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The Expectations Trap Hypothesis

Lawrence J. Christiano

Northwestern University; Federal Reserve Bank of Cleveland; Federal Reserve Bank of Chicago; Federal Reserve Bank of Minneapolis; National Bureau of Economic Research (NBER)

Christopher J. Gust

Federal Reserve Board - Trade and Financial Studies

July 2000

NBER Working Paper No. W7809

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. Which hypothesis is more plausible has important implications for what needs to be done to prevent other inflation flare-ups.

Number of Pages in PDF File: 42

JEL Classification: E1

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Date posted: July 26, 2000  

Suggested Citation

Christiano, Lawrence J. and Gust, Christopher J., The Expectations Trap Hypothesis (July 2000). NBER Working Paper No. W7809. Available at SSRN: https://ssrn.com/abstract=237131

Contact Information

Lawrence J. Christiano (Contact Author)
Northwestern University ( email )
2003 Sheridan Road
Evanston, IL 60208
United States
847-491-8231 (Phone)
847-491-7001 (Fax)
Federal Reserve Bank of Cleveland
East 6th & Superior
Cleveland, OH 44101-1387
United States
Federal Reserve Bank of Chicago
230 South LaSalle Street
Chicago, IL 60604
United States
Federal Reserve Bank of Minneapolis
90 Hennepin Avenue
Minneapolis, MN 55480
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Christopher J. Gust
Federal Reserve Board - Trade and Financial Studies ( email )
20th St. and Constitution Ave.
Washington, DC 20551
United States
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