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Abstract

Using a VAR model that includes survey data on households' inflation expectations for Japan and the US, we investigate their determinants and influences on the economy and compare their properties in two countries. Short-term non-recursive restrictions are imposed taking account of simultaneous co-dependence between realized and expected inflation. We find that responding to changes in exogenous prices and to monetary policy shocks, inflation expectations adjust more quickly than does realized inflation. Compared with Japan, the effects of exogenous prices on inflation and inflation expectations in the US are not only large but also long lasting and shocks to expectations have self-fulfilling effects on inflation.

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File URL: http://www.sciencedirect.com/science/article/B6WMC-50CV7WW-2/2/f18a47685c40f70092d8eeafcbd4aab7
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Bibliographic Info

Article provided by Elsevier in its journal Journal of the Japanese and International Economies.

Volume (Year): 24 (2010)
Issue (Month): 4 (December)
Pages: 503-518

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Handle: RePEc:eee:jjieco:v:24:y:2010:i:4:p:503-518

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Web page: http://www.elsevier.com/locate/inca/622903

Related research

Keywords: Expected inflation Structured vector autoregression Monetary policy;

References

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