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.

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.

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

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