The Joint Dynamics of U.S. and Euro-Area Inflation Rates: Expectations and Time-varying Uncertainty
58 Pages Posted: 14 Apr 2017
Date Written: February 2017
We use several U.S. and euro-area surveys of professional forecasters to estimate a dynamic factor model of inflation with time-varying uncertainty. We obtain survey-consistent distributions of future inflation at any horizon, both in the United States and in the euro area. Our methodology allows us to compute, in closed form, survey-consistent measures of inflation expectations, inflation uncertainty, inflation expectations anchoring, deflation probabilities and U.S. and euro-area inflation co-movements. Our results suggest strong commonalities between inflation dynamics in the two economies.
Keywords: inflation, surveys of professional forecasters, dynamic factor model with stochastic volatility, term structure of inflation expectations and inflation uncertainty, anchoring of inflation expectations
JEL Classification: C32, E31, E44
Suggested Citation: Suggested Citation