expected inflation. The inability of the Fed to maintain a credible commitment to low interest rates in the face of increased … government spending and rising inflation led to the Fed-Treasury Accord of March 1951. Following the Accord, the external …

monetary theory, such as the welfare cost of inflation. It is shown that when money is a vital form of liquidity to meet … uncertain consumption needs, the welfare costs of inflation can be extremely large. With log utility and parameter values that …, agents in our model are willing to reduce consumption by 3% ~ 4% to avoid 10% annual inflation. The astonishingly large …

policy returns to normal. The first regime is a return to the high and volatile inflation rate of the 1970s. The second … regime, the one that most Federal Reserve officials and business economists expect, is a return to the credible low inflation … inflation, the policy rate and the 10-year bond rate. These models are used to forecast the U.S. economy from 2008 through 2013 …