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Does the expectations trap render the Natural-Rate Model invalid in the disinflationary zone?

Leeson, R. (1997) Does the expectations trap render the Natural-Rate Model invalid in the disinflationary zone? Cambridge Journal of Economics, 21 (1). pp. 95-101.

Link to Published Version: http://dx.doi.org/10.1093/oxfordjournals.cje.a0136...
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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 Phillips and 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.

Publication Type: Journal Article
Murdoch Affiliation: School of Business
Publisher: Oxford University Press
URI: http://researchrepository.murdoch.edu.au/id/eprint/36051
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