Measuring Inflation Expectations Uncertainty Using High-Frequency Data

35 Pages Posted: 17 Oct 2017

See all articles by Joshua Chan

Joshua Chan

University of Technology Sydney (UTS)

Yong Song

University of Melbourne

Date Written: October 16, 2017

Abstract

Inflation expectations play a key role in determining future economic outcomes. The associated uncertainty provides a direct gauge of how well-anchored the inflation expectations are. We construct a model-based measure of inflation expectations uncertainty by augmenting a standard unobserved components model of inflation with information from noisy and possibly biased measures of inflation expectations obtained from financial markets. This new model-based measure of inflation expectations uncertainty is more accurately estimated and can provide valuable information for policymakers. Using US data, we find significant changes in inflation expectations uncertainty during the Great Recession.

Keywords: Trend Inflation, Inflation Expectations, Stochastic Volatility

JEL Classification: C11, C32, E31

Suggested Citation

Chan, Joshua and Song, Yong, Measuring Inflation Expectations Uncertainty Using High-Frequency Data (October 16, 2017). CAMA Working Paper No. 61/2017. Available at SSRN: https://ssrn.com/abstract=3054252 or http://dx.doi.org/10.2139/ssrn.3054252

Joshua Chan (Contact Author)

University of Technology Sydney (UTS) ( email )

15 Broadway, Ultimo
PO Box 123
Sydney, NSW 2007
Australia

Yong Song

University of Melbourne ( email )

185 Pelham Street
Carlton, Victoria 3053
Australia

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