3 Equilibria with zero output gaps
نویسنده
چکیده
This paper provides an interesting explanation of the Great Inflation. It starts with the assumption that the Fed objectives were to stabilize the output gap and maintain “continuity” of the interest rate” and then presents a model where inflation becomes a stochastic trend. In particular, inflation increases with negative innovations in potential-output growth. Fed monetary policy is seen as switching between “business as usual” and “inflation fighting.”
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