Multiple Equilibria

Multiple equilibria is the idea that more than one self-reinforcing outcome can be possible from the same starting point. Our mission: Find the world’s best economic ideas (Summer School World Tour) uses it to explain inflation: if people expect low inflation, they may raise prices and wages less, helping produce low inflation; if they expect high inflation, their behavior can help produce that instead.

The source connects the concept to Inflation Targeting. A credible target can move an economy from a high-inflation equilibrium toward a low-inflation one, but only if businesses and workers believe the central bank will act consistently enough to make the new path real.

Key Claims

• Expectations can be causal, not merely descriptive.
• A public target can coordinate behavior when many actors are watching one another.
• Credibility failures can leave an economy stuck in the wrong equilibrium even when the policy goal is clear.

Connections

• Inflation Targeting, Central Bank Independence, and Inflation Bias - monetary-policy branch.
• New Zealand / 新西兰, Arthur Grimes, Don Brash, and Reserve Bank of New Zealand - source case.
• Game Theory - adjacent strategic-expectations frame.