Anchored Inflation Expectations

69 Pages Posted: 17 Mar 2020

See all articles by Carlos Carvalho

Carlos Carvalho

Asset 1 Investment Company; Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics

Stefano Eusepi

University of Texas at Austin

Emanuel Moench

Deutsche Bundesbank; Goethe University Frankfurt - Department of Money and Macroeconomics

Bruce Preston

University of Melbourne - Department of Economics

Multiple version iconThere are 3 versions of this paper

Date Written: March 17, 2020

Abstract

We develop a theory of low-frequency movements in inflation expectations, and use it to interpret joint dynamics of inflation and inflation expectations for the United States and other countries over the post-war period. In our theory long-run inflation expectations are endogenous. They are driven by short-run inflation surprises, in a way that depends on recent forecasting performance and monetary policy. This distinguishes our theory from common explanations of low-frequency properties of inflation. The model, estimated using only inflation and short-term forecasts from professional surveys, accurately predicts observed measures of long-term inflation expectations and identifies episodes of unanchored expectations.

Keywords: Anchored expectations, inflation expectations, survey data

JEL Classification: E32, D83, D84

Suggested Citation

Carvalho, Carlos and Eusepi, Stefano and Moench, Emanuel and Preston, Bruce, Anchored Inflation Expectations (March 17, 2020). CAMA Working Paper No. 25/2020, Available at SSRN: https://ssrn.com/abstract=3555532 or http://dx.doi.org/10.2139/ssrn.3555532

Carlos Carvalho

Asset 1 Investment Company ( email )

Avenida Juscelino Kubitschek, 1600/Conj 52
São Paulo, São Paulo
Brazil

HOME PAGE: http://www.asset1.com.br

Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics ( email )

Rua Marques de Sao Vicente, 225/206F
Rio de Janeiro, RJ 22453
Brazil

HOME PAGE: http://https://sites.google.com/site/cvianac2/carloscarvalho

Stefano Eusepi

University of Texas at Austin ( email )

2317 Speedway
Austin, TX 78712
United States

Emanuel Moench

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany
+49 69 95662312 (Phone)

HOME PAGE: http://https://www.bundesbank.de/en/emanuel-moench

Goethe University Frankfurt - Department of Money and Macroeconomics ( email )

Germany

Bruce Preston (Contact Author)

University of Melbourne - Department of Economics ( email )

Melbourne, 3010
Australia

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