The expectations trap hypothesis.(inflation)

From: Economic Perspectives | Date: June 22, 2000| Author: | Copyright information

Introduction and summary

Many countries, including the U.S., experienced a costly, high inflation in the 1970s. This article reviews some research devoted to understanding why it happened and what can be done to prevent it from happening again.

We take it for granted that the high inflation was the result of high money growth produced by the U.S. Federal Reserve. But, to make sure that it does not happen again, it is not enough to know who did it. It is also necessary to know why the Fed did it. We hypothesize that the Fed was in effect pushed into producing the high ...

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