Inflation Expectations and the Stabilization of Inflation: Alternative Hypotheses

58 Pages Posted: 2 May 2016

See all articles by Jeremy Nalewaik

Jeremy Nalewaik

Board of Governors of the Federal Reserve System

Date Written: 2016-04-21

Abstract

This paper examines two candidate hypotheses explaining the stabilization of U.S. inflation since the 1970s and 1980s. The first explanation credits the stabilization of inflation expectations, and assumes those expectations have a strong positive causal effect on actual subsequent inflation, while the second explanation credits the disappearance of such a strong positive causal effect. The paper reports statistical tests favorable to both a stabilization of inflation expectations and a marked decline in the effect of the general public’s inflation expectations on subsequent inflation.

Keywords: Inflation, Phillips Curve

JEL Classification: E31, E52

Suggested Citation

Nalewaik, Jeremy John, Inflation Expectations and the Stabilization of Inflation: Alternative Hypotheses (2016-04-21). FEDS Working Paper No. 2016-035. Available at SSRN: https://ssrn.com/abstract=2772898 or http://dx.doi.org/10.17016/FEDS.2016.035

Jeremy John Nalewaik (Contact Author)

Board of Governors of the Federal Reserve System ( email )

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