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Does the Expectations Trap Render the Natural-Rate Model Invalid in the Disinflationary Zone?

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  • Leeson, Robert

Abstract

This paper questions the validity of the natural-rate expectations augmented Phillips curve (N-REAP) model by examining the concept of an 'expectations trap.' If a Phillips curve becomes horizontal at higher levels of unemployment--as it did in the curves derived from a century of data by A. W. H. Phillips and R. G. Lipsey--then policy-induced increases in unemployment can reduce neither inflation nor inflationary expectations. The expectations trap, therefore, tends to render the policy conclusions derived from the N-REAP model either invalid or intolerably slow in the disinflation region. Copyright 1997 by Oxford University Press.

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Bibliographic Info

Article provided by Oxford University Press in its journal Cambridge Journal of Economics.

Volume (Year): 21 (1997)
Issue (Month): 1 (January)
Pages: 95-101

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Handle: RePEc:oup:cambje:v:21:y:1997:i:1:p:95-101

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Cited by:
  1. Robert Leeson, 2000. "Inflation, Disinflation and the Natural Rate of Unemployment: A Dynamic Framework for Policy Analysis," RBA Annual Conference Volume, in: David Gruen & Sona Shrestha (ed.), The Australian Economy in the 1990s Reserve Bank of Australia.

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