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Survey-Based Estimates of the Term Structure of Expected U.S. Inflation

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Author Info

  • Sharon Kozicki
  • P.A. Tinsley

Abstract

Surveys provide direct information on expectations, but only short histories are available at quarterly frequencies or for long-horizon expectations. Longer histories typically contain only semi-annual observations of short-horizon forecasts. The authors fill in the gaps by constructing a 50-year monthly history of expected inflation at all horizons from one month to 10 years that is consistent with inflation data and infrequent survey data. In the process, some models that fit inflation well are found to generate forecasts that bear little resemblance to survey data. Also, survey data on near-term expectations are found to contain considerable information about long-horizon views. The estimated long-horizon forecast series, a measure of the private sector’s perception of the inflation target of monetary policy, has shifted considerably over time and is the source of some of the persistence of inflation. When compared with estimates of the effective inflation goal of policy, these perceptions suggest that monetary policy has been less than fully credible historically.

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Bibliographic Info

Paper provided by Bank of Canada in its series Working Papers with number 06-46.

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Length: 40 pages
Date of creation: 2006
Date of revision:
Handle: RePEc:bca:bocawp:06-46

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Related research

Keywords: Inflation and prices; Inflation targets; Uncertainty and monetary policy;

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References

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Citations

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Cited by:
  1. Andrés González & Kirstin Hubrich & Timo Teräsvirta, 2009. "Forecasting inflation with gradual regime shifts and exogenous information," CREATES Research Papers 2009-03, School of Economics and Management, University of Aarhus.
  2. Christopher Reicher & Johannes Utlaut, 2011. "The effect of inflation on real commodity prices," Kiel Working Papers 1704, Kiel Institute for the World Economy.
  3. Todd E. Clark & Troy Davig, 2008. "An empirical assessment of the relationships among inflation and short- and long-term expectations," Research Working Paper RWP 08-05, Federal Reserve Bank of Kansas City.
  4. Philippe Mueller & Mikhail Chernov, 2008. "The Term Structure of Inflation Expectations," 2008 Meeting Papers 346, Society for Economic Dynamics.
  5. Elmar Mertens, 2011. "Measuring the level and uncertainty of trend inflation," Finance and Economics Discussion Series 2011-42, Board of Governors of the Federal Reserve System (U.S.).
  6. Sharon Kozicki & P.A. Tinsley, 2005. "Perhaps the FOMC did what it said it did : an alternative interpretation of the Great Inflation," Research Working Paper RWP 05-04, Federal Reserve Bank of Kansas City.

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