Expectation Traps and Discretion

V. V. Chari*, Lawrence J. Christiano, Martin Eichenbaum

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

58 Scopus citations


We develop a dynamic model with optimizing private agents and a benevolent, optimizing monetary authority that cannot commit to future policies. We characterize the set of sustainable equilibria and discuss the implications for institutional reform. We show that there are equilibria in which the monetary authority pursues inflationary policies because that is what private agents expect. We call such equilibria expectation traps. Alternative institutional arrangements for the conduct of monetary policy which impose limited forms of commitment on the policymaker can eliminate expectation traps.Journal of Economic LiteratureClassification Numbers: E31, E42, E50, E51, E58.

Original languageEnglish (US)
Pages (from-to)462-492
Number of pages31
JournalJournal of Economic Theory
Issue number2
StatePublished - Aug 1998

ASJC Scopus subject areas

  • Economics and Econometrics


Dive into the research topics of 'Expectation Traps and Discretion'. Together they form a unique fingerprint.

Cite this