The expectations trap hypothesis

The authors examine the inflation take-off of the early 1970s in terms of the expectations trap hypothesis, according to which fear of violating the public’s inflation expectations pushed the Fed into producing high inflation. This interpretation is compared with the Phillips curve hypothesis, according to which the Fed produced high inflation as the unfortunate byproduct of a conscious decision to jump-start a weak economy. Which hypothesis is more plausible has important implications for what should be done to prevent future inflation flare-ups.Inflation (Finance) ; Phillips curve ; Economic conditions - United States

The expectations trap hypothesis

This article explores a hypothesis about the take-off in inflation in the early 1970s. According to the expectations trap hypothesis, the Fed was driven to high money growth by a fear of violating the expectations of high inflation that existed at the time. The authors argue that this hypothesis is more compelling than the Phillips curve hypothesis, according to which the Fed produced the high inflation as an unfortunate by product of a conscious decision to jump start a weak economy.Inflation (Finance) ; Phillips curve

Taylor rules in a limited participation model

The authors use the limited participation model of money to study Taylor rules' operating characteristics for setting the interest rate. Rules are evaluated according to their ability to protect the economy from bad outcomes like the burst of inflation observed in the 1970s. On the basis of their analysis, the authors argue for a rule that 1) raises the nominal interest rate more than one-for-one with a rise in inflation; and 2) does not change the interest rate in response to a change in output relative to trend.Monetary policy ; Interest rates

Monetary policy in a financial crisis

What are the economic effects of an interest rate cut when an economy is in the midst of a financial crisis? Under what conditions will a cut stimulate output and employment, and raise welfare? Under which will it have the opposite effects? The authors answer these questions in a general class of open-economy models, modeling a financial crisis as a time when collateral constraints are suddenly binding. They find that when there are frictions in adjusting the level of output in the traded goods sector and the rate at which that output can be used in other parts of the economy, a cut in the interest rate is most likely to result in a welfare-reducing drop in output and employment. When these frictions are absent, a cut in the interest rate improves asset positions and promotes a welfare-increasing economic expansion.Financial crises ; Monetary policy ; Interest rates

On the Equal-Rate Capacity of the AWGN Multiway Relay Channel

The L-user additive white Gaussian noise multiway relay channel is investigated, where L users exchange information at the same rate through a single relay. A new achievable rate region, based on the functional-decode-forward coding strategy, is derived. For the case where there are three or more users, and all nodes transmit at the same power, the capacity is obtained. For the case where the relay power scales with the number of users, it is shown that both compress-forward and functional-decode-forward achieve rates within a constant number of bits of the capacity at all SNR levels; in addition, functional-decode-forward outperforms compress-forward and complete-decode-forward at high SNR levels.Comment: Author's final version (to appear in IEEE Transactions on Information Theory

Optimal Coding Functions for Pairwise Message Sharing on Finite-Field Multi-Way Relay Channels

This paper considers the finite-field multi-way relay channel with pairwise message sharing, where multiple users exchange messages through a single relay and where the users may share parts of their source messages (meaning that some message parts are known/common to more than one user). In this paper, we design an optimal functional-decode-forward coding scheme that takes the shared messages into account. More specifically, we design an optimal function for the relay to decode (from the users on the uplink) and forward (back to the users on the downlink). We then show that this proposed function-decode-forward coding scheme can achieve the capacity region of the finite-field multi-way relay channel with pairwise message sharing. This paper generalizes our previous result for the case of three users to any number of users.Comment: Author's final version (accepted for presentation at the 2014 IEEE International Conference on Communications [ICC 2014]

Functional-Decode-Forward for the General Discrete Memoryless Two-Way Relay Channel

We consider the general discrete memoryless two-way relay channel, where two users exchange messages via a relay, and propose two functional-decode-forward coding strategies for this channel. Functional-decode-forward involves the relay decoding a function of the users' messages rather than the individual messages themselves. This function is then broadcast back to the users, which can be used in conjunction with the user's own message to decode the other user's message. Via a numerical example, we show that functional-decode-forward with linear codes is capable of achieving strictly larger sum rates than those achievable by other strategies