Technical Appendix to “Why Inflation Rose and Fell: Policymakers’ Beliefs and US Postwar Stabilization Policy”

β̂ u = [0; ρ1; ρ2] satisfy (I) and (II) and therefore represents a self-confirming equilibrium, in the case of στ = 0. When σ 2 τ > 0, finding the self-confirming equilibrium is more involved and requires a numerical solution of the system of equations given by (I) and (II). The procedure works as follows: any given fixed value of ûN , β̂ π and β̂ u implies a linear stochastic process for £ πt, ut, Vt, u N t ¤ via equations (5), (2), (3) and (9). The linear process can be rewritten as a first order system of the form zt = C + Azt−1 + Bνt. Thus E(zt) = (I − A)−1C and V ar(zt) can ∗Northwestern University and NBER