Why Do We Think That Inflation Expectations Matter for Inflation? (And Should We?)

<ns2:p>Economists and economic policymakers believe that households' and firms' expectations of future inflation are a key determinant of actual inflation. A review of the relevant theoretical and empirical literature suggests that this belief rests on extremely shaky foundations, and a case is made that adhering to it uncritically could easily lead to serious policy errors.</ns2:p>