The finding that monetary policymakers violated the Taylor principle during the 1970s but satisfied the principle in the past two decades would be consistent with a reduced incidence of destabilizing expectational shocks.13 Support for the view that inflation expectations can be an independent source of economic volatility has also emerged from the extensive recent literature on learning and macroeconomics (Evans and Honkopohja, 2001).
For example, Athanasios Orphanides and John C. Williams (2003a, 2003b) have studied models in which the public must learn the central bank’s underlying preferences regarding inflation by observing the actual inflation process.14 With learning, inflation expectations take on a more adaptive character; in particular, high and unstable inflation will beget similar characteristics in the pattern of inflation expectations.