The Time-Varying Degree of Inflation Expectations Anchoring
26 Pages Posted: 23 May 2015
Date Written: May 22, 2015
Well-anchored inflation expectations have become a key indicator for the credibility of a central bank’s inflation target. Since the outbreak of the recent financial crisis, the existence and the degree of de-anchoring of U.S. inflation expectations have been under debate. This paper introduces an encompassing time-varying parameter model to analyze the changing degree of U.S. inflation expectations anchoring. We confirm that inflation expectations have been partially de-anchored during the financial crisis. Yet, our results suggest that inflation expectations have been successfully re- anchored ever since.
Keywords: Anchoring of Inflation Expectations, Financial Crisis, Break-Even Inflation Rates, Time-Varying Parameter
JEL Classification: E31, E52, E58, C22
Suggested Citation: Suggested Citation