42 Pages Posted: 26 Jul 2000
Date Written: July 2000
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.
JEL Classification: E1
Suggested Citation: 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
By John Taylor