Due to historical differences, countries often differ in how quickly a change in actual inflation is incorporated into a change in expected inflation. In a country such as Japan that has had very little inflation in recent memory, it will take longer for a change in the actual inflation rate to be reflected in a corresponding change in the expected inflation rate. In contrast, in a country such as Argentina, one that has recently had very high inflation, a change in the actual inflation rate will immediately be reflected in a corresponding change in the expected inflation rate.
a. What does this imply about the effectiveness of monetary and fiscal policy to reduce the unemployment rate?
b. What does this imply about the short-run and long-run Phillips curves in these two types of countries?
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