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The role of expectations and output in the inflation process: an empirical assessment

Author

Listed:
  • Jeffrey C. Fuhrer
  • Giovanni P. Olivei

Abstract

This brief examines two issues of current interest concerning inflation: (1) whether \\"well-anchored\\" expectations will help to restrain inflation's decline and whether an \\"un-anchoring\\" of expectations could lead to undesirably high inflation and (2) to what extent output (or utilization) gaps are useful components of empirical models of inflation and, if they are useful, to what extent current gaps might counterbalance the effect of expectations on inflation. The goals of conducting this examination are to articulate a reasonably coherent framework for the discussion, highlight the key areas of uncertainty, and provide new empirical evidence that sheds some light on these areas.

Suggested Citation

  • Jeffrey C. Fuhrer & Giovanni P. Olivei, 2010. "The role of expectations and output in the inflation process: an empirical assessment," Public Policy Brief, Federal Reserve Bank of Boston.
    • Handle: RePEc:fip:fedbpb:y:2010:n:10-2
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    File URL: http://www.bostonfed.org/economic/ppb/2010/ppb102.pdf
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    Cited by:

    1. James H. Stock & Mark W. Watson, 2010. "Modeling Inflation After the Crisis," Working Papers 2010-1, Princeton University. Economics Department..
    2. Andrea Stella & James H. Stock, 2012. "A state-dependent model for inflation forecasting," International Finance Discussion Papers 1062, Board of Governors of the Federal Reserve System (U.S.).
    3. Philippe Goulet Coulombe, 2022. "A Neural Phillips Curve and a Deep Output Gap," Working Papers 22-01, Chair in macroeconomics and forecasting, University of Quebec in Montreal's School of Management.
    4. Laurence Ball & Sandeep Mazumder, 2011. "Inflation Dynamics and the Great Recession," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 42(1 (Spring), pages 337-405.
    5. Sophocles Mavroeidis & Mikkel Plagborg-Møller & James H. Stock, 2014. "Empirical Evidence on Inflation Expectations in the New Keynesian Phillips Curve," Journal of Economic Literature, American Economic Association, vol. 52(1), pages 124-188, March.
    6. Gerunov, Anton, 2014. "Критичен Преглед На Основните Подходи За Моделиране На Икономическите Очаквания [A Critical Review of Major Approaches for Modeling Economic Expectations]," MPRA Paper 68797, University Library of Munich, Germany.
    7. Kichian, Maral & Rumler, Fabio, 2014. "Forecasting Canadian inflation: A semi-structural NKPC approach," Economic Modelling, Elsevier, vol. 43(C), pages 183-191.
    8. Frédérique Bec & Patrick Kanda, 2019. "Is inflation driven by survey-based, VAR-based or myopic expectations?," Working Papers hal-02175836, HAL.
    9. Michael Dotsey & Shigeru Fujita & Tom Stark, 2018. "Do Phillips Curves Conditionally Help to Forecast Inflation?," International Journal of Central Banking, International Journal of Central Banking, vol. 14(4), pages 43-92, September.
    10. James H. Stock & Mark W. Watson, 2010. "Modeling inflation after the crisis," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 173-220.
    11. Bec, Frédérique & Kanda, Patrick, 2020. "Is inflation driven by survey-based, VAR-based or myopic expectations? An empirical assessment from US real-time data," The North American Journal of Economics and Finance, Elsevier, vol. 51(C).
    12. Laurence Ball & Sandeep Mazumder, 2020. "The Nonpuzzling Behavior of Median Inflation," Central Banking, Analysis, and Economic Policies Book Series, in: Gonzalo Castex & Jordi Galí & Diego Saravia (ed.),Changing Inflation Dynamics,Evolving Monetary Policy, edition 1, volume 27, chapter 3, pages 049-070, Central Bank of Chile.
    13. Adam S. Posen, 2010. "The Central Banker's Case for Doing More," Policy Briefs PB10-24, Peterson Institute for International Economics.
    14. Moses Tule & Afees Salisu & Charles Chiemeke, 2020. "Improving Nigeria’s Inflation Forecast with Oil Price: The Role of Estimators," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 18(1), pages 191-229, March.
    15. Michelle L. Barnes & Fabia Gumbau-Brisa & Denny Lie & Giovanni P. Olivei, 2011. "Estimation of forward-looking relationships in closed form: an application to the New Keynesian Phillips curve," Working Papers 11-3, Federal Reserve Bank of Boston.
    16. Wolfgang Pollan, 2013. "US Inflation and Crude Oil Prices. An International Perspective," WIFO Working Papers 451, WIFO.
    17. Philippe Goulet Coulombe, 2022. "A Neural Phillips Curve and a Deep Output Gap," Papers 2202.04146, arXiv.org.
    18. James Hebden & Edward P. Herbst & Jenny Tang & Giorgio Topa & Fabian Winkler, 2020. "How Robust Are Makeup Strategies to Key Alternative Assumptions?," Finance and Economics Discussion Series 2020-069, Board of Governors of the Federal Reserve System (U.S.).
    19. Frank Smets, 2010. "Commetary: modeling inflation after the crisis," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 221-234.
    20. Diego Moccero & Shingo Watanabe & Boris Cournède, 2011. "What Drives Inflation in the Major OECD Economies?," OECD Economics Department Working Papers 854, OECD Publishing.

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    Keywords

    Inflation (Finance);

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