outcomes such as the burst of inflation observed in the 1970s. Based on our analysis, we argue for a rule which: (i) raises the … nominal interest rate more than one-for-one with a rise in inflation; and (ii) does not change the interest rate in response …

"Why is inflation persistently high in some periods and low in others? The reason may be absence of commitment in … trigger strategies. In these traps, expectations of high or low inflation lead the public to take defensive actions, which … inflation rate is low on average. This analysis suggests that institutions which promote commitment can prevent high inflation …