The Role of Expectations and Output in the Inflation Process: An Empirical Assessment

39 Pages Posted: 2 Jul 2010

See all articles by Jeffrey C. Fuhrer

Jeffrey C. Fuhrer

Federal Reserve Bank of Boston; Harvard University - Harvard Kennedy School (HKS)

Giovanni Olivei

Federal Reserve Bank of Boston

Date Written: May 1, 2010

Abstract

This brief examines two issues of current interest concerning inflation: (1) whether "well-anchored" expectations will help to restrain inflation's decline and whether an "un-anchoring" of expectations could lead to undesirably high inflation and (2) to what extent output (or utilization) gaps are useful components of empirical models of inflation and, if they are useful, to what extent current gaps might counterbalance the effect of expectations on inflation. The goals of conducting this examination are to articulate a reasonably coherent framework for the discussion, highlight the key areas of uncertainty, and provide new empirical evidence that sheds some light on these areas.

JEL Classification: E3, E5, E6

Suggested Citation

Fuhrer, Jeffrey C. and Olivei, Giovanni, The Role of Expectations and Output in the Inflation Process: An Empirical Assessment (May 1, 2010). FRB of Boston Public Policy Brief No. 10-2. Available at SSRN: https://ssrn.com/abstract=1633926 or http://dx.doi.org/10.2139/ssrn.1633926

Jeffrey C. Fuhrer (Contact Author)

Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
Boston, MA 02210
United States
617-973-3410 (Phone)
617-973-3957 (Fax)

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States

Giovanni Olivei

Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
Boston, MA 02210
United States

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