If expectations are solidly anchored, then inflation will not increase in response to a negative supply shock because economic agents will not expect a rise in inflation.
Therefore, the policy actions of the monetary authorities that aim at price stabilization, as well as the ability of the monetary authorities to communicate their policy commitments effectively to the public, will keep inflation expectations contained and contribute significantly to a muted response of inflation to supply shocks.
How much of this may be due to the credibility of the Fed?
Type of assignment: Academic paper writing
Type of assignment: Coursework
Number of sources: 5
Academic level: Bachelor
Paper format: MLA
Line spacing: Double
Language style: US English