We discuss the timing and strength of the Fed's reaction to the recent inflation surge within an estimated … macroeconomic model where long-run inflation expectations are heterogeneous and can lose their anchoring to the target. The … resulting inflation scare worsens the real cost of disinflation. We derive a closed-form solution that retains the entire time …

of monetary policy. We use a stylized macro model of Howitt (1992) to investigate inflation dynamics under alternative … interest rate in response to inflation. In particular, if the monetary authority only responds weakly to inflation, a … cumulative process with rising inflation is likely. On the other hand, a Taylor interest rate rule that sets the interest rate …

rate sequences that satisfy interest rate target rules. An interest rate target with a positive inflation feedback in … general corresponds to money growth rates rising with inflation. When prices are not completely flexible, this implies that a … target can be implemented by a non-destabilizing money supply, even if the inflation feedback exceeds one, which is often …