This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

An empirical assessment of the relationships among inflation and short- and long-term expectations

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Todd E. Clark
Troy Davig

Additional information is available for the following registered author(s):

Abstract

This paper uses a detailed literature review and an empirical analysis of three models to assess the links among inflation and survey measures of long- and short-term expectations. In the first approach, we jointly estimate a model of inflation, survey expectations and monetary policy, where each is a function of a common time-varying inflation trend. In the estimates, long-term expectations track closely the unobserved trend that is an important factor in inflation dynamics, implying that changes in long-run expectations can lead to persistent movements in inflation. In the second approach, we estimate a time-varying parameter VAR with stochastic volatility. This model relaxes the cross-equation and constant parameter restrictions from the first model. Impulse response analysis shows a relatively stable relationship between inflation and survey measures of inflation, although with some modest changes consistent with improved anchoring of long-term expectations. Finally, we rely on a conventional VAR framework incorporating several macroeconomic variables, including both short- and long-term measures of expected inflation. In these estimates, shocks to either measure of expectations lead to a rise in the other measure and some limited pass-through to inflation. Shocks to inflation cause both short- and long-term expectations to rise. Other factors such as monetary policy, economic activity, and food price inflation also affect expectations and inflation.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.kansascityfed.org/PUBLICAT/RESWKPAP/PDF/RWP08-05.pdf
File Format: application/pdf
File Function:
Download Restriction: no

Publisher Info
Paper provided by Federal Reserve Bank of Kansas City in its series Research Working Paper with number RWP 08-05.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length:
Date of creation: 2008
Date of revision:
Handle: RePEc:fip:fedkrw:rwp08-05

Contact details of provider:
Postal: 1 Memorial Drive, Kansas City, MO 64198-0001
Phone: (816) 881-2254
Email:
Web page: http://www.kansascityfed.org/
More information through EDIRC

Order Information:
Email:
Web: http://app.ny.frb.org/cfpicnic/frame1.cfm

For technical questions regarding this item, or to correct its listing, contact: (Diane Rosenberger).

Related research
Keywords:

Other versions of this item:

This paper has been announced in the following NEP Reports: References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Gürkaynak, Refet S. & Levin, Andrew & Swanson, Eric T, 2006. "Does Inflation Targeting Anchor Long-Run Inflation Expectations? Evidence from Long-Term Bond Yields in the US, UK and Sweden," CEPR Discussion Papers 5808, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  2. Timothy Cogley & Thomas Sargent, . "Drifts and Volatilities: Monetary Policies and Outcomes in the Post WWII US," Working Papers 2133503, Department of Economics, W. P. Carey School of Business, Arizona State University. [Downloadable!]
    Other versions:
  3. Yash P. Mehra & Christopher Herrington, 2008. "On the sources of movements in inflation expectations : a few insights from a VAR model," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 121-146. [Downloadable!]
  4. Kozicki, Sharon & Tinsley, P. A., 2001. "Term structure views of monetary policy under alternative models of agent expectations," Journal of Economic Dynamics and Control, Elsevier, vol. 25(1-2), pages 149-184, January. [Downloadable!] (restricted)
  5. Ottaviani, Marco & Sorensen, Peter Norman, 2006. "The strategy of professional forecasting," Journal of Financial Economics, Elsevier, vol. 81(2), pages 441-466, August. [Downloadable!] (restricted)
    Other versions:
  6. Fabio Milani, 2006. "The Evolution of the Fed's Inflation Target in an Estimated Model under RE and Learning," Working Papers 060704, University of California-Irvine, Department of Economics. [Downloadable!]
  7. Bernanke, Ben S. & Boivin, Jean, 2003. "Monetary policy in a data-rich environment," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 525-546, April. [Downloadable!] (restricted)
    Other versions:
  8. Mankiw, N. Gregory & Reis, Ricardo & Wolfers, Justin, 2003. "Disagreement about Inflation Expectations," Research Papers 1807, Stanford University, Graduate School of Business. [Downloadable!]
    Other versions:
  9. Daniel Leigh, 2005. "Estimating the Implicit Inflation Target: An Application to U.S. Monetary Policy," IMF Working Papers 05/77, International Monetary Fund. [Downloadable!]
  10. Sylvain Leduc & Keith Sill & Tom Stark, 2002. "Self-fulfilling expectations and the inflation of the 1970s: evidence from the Livingston Survey," Working Papers 02-13, Federal Reserve Bank of Philadelphia. [Downloadable!]
    Other versions:
  11. Refet S. Gürkaynak & Brian Sack & Eric Swanson, 2003. "The excess sensitivity of long-term interest rates: evidence and implications for macroeconomic models," Proceedings, Federal Reserve Bank of San Francisco, issue Mar. [Downloadable!]
    Other versions:
  12. Michael T. Kiley, 2008. "Estimating the common trend rate of inflation for consumer prices and consumer prices excluding food and energy prices," Finance and Economics Discussion Series 2008-38, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  13. Marco Del Negro, 2003. "Discussion of Cogley and Sargent's "Drifts and volatilities: Monetary policies and outcomes in the post WWII U.S."," Working Paper 2003-26, Federal Reserve Bank of Atlanta. [Downloadable!]
  14. Lamont, Owen A., 2002. "Macroeconomic forecasts and microeconomic forecasters," Journal of Economic Behavior & Organization, Elsevier, vol. 48(3), pages 265-280, July. [Downloadable!] (restricted)
  15. Erceg, Christopher J. & Levin, Andrew T., 2003. "Imperfect credibility and inflation persistence," Journal of Monetary Economics, Elsevier, vol. 50(4), pages 915-944, May. [Downloadable!] (restricted)
    Other versions:
  16. Keen Meng Choy & Kenneth Leong & Anthony S. Tay, 2003. "Non-Fundamental Expectations and Economic Fluctuations: Evidence from Professional Forecasts," Departmental Working Papers wp0306, National University of Singapore, Department of Economics. [Downloadable!]
    Other versions:
  17. Refet S. Gürkaynak & Brian Sack & Jonathan H. Wright, 2008. "The TIPS yield curve and inflation compensation," Finance and Economics Discussion Series 2008-05, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  18. Stock, James H. & Watson, Mark W., 1999. "Forecasting inflation," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 293-335, October. [Downloadable!] (restricted)
    Other versions:
  19. Sharon Kozicki & P.A. Tinsley, 1997. "Shifting endpoints in the term structure of interest rates," Research Working Paper 97-08, Federal Reserve Bank of Kansas City. [Downloadable!]
    Other versions:
  20. Roberts, John M, 1995. "New Keynesian Economics and the Phillips Curve," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 975-84, November. [Downloadable!] (restricted)
  21. Maria Demertzis & Massimiliano Marcellino & Nicola Viegi, 2008. "A Measure for Credibility: Tracking US Monetary Developments," Economics Working Papers ECO2008/38, European University Institute. [Downloadable!]
    Other versions:
  22. Chernov, Mikhail & Mueller, Philippe, 2008. "The Term Structure of Inflation Expectations," CEPR Discussion Papers 6809, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  23. Jeremy M. Piger & Robert H. Rasche, 2006. "Inflation: do expectations trump the gap?," Working Papers 2006-013, Federal Reserve Bank of St. Louis. [Downloadable!]
  24. Beechey, Meredith J & Johannsen, Benjamin K & Levin, Andrew, 2007. "Are Long-Run Inflation Expectations Anchored More Firmly in the Euro Area than in the United States?," CEPR Discussion Papers 6536, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  25. Sharon Kozicki & P.A. Tinsley, 1998. "Term structure views of monetary policy," Research Working Paper 98-07, Federal Reserve Bank of Kansas City. [Downloadable!]
  26. Michael T. Kiley, 2006. "A quantitative comparison of sticky-price and sticky-information models of price setting," Finance and Economics Discussion Series 2006-45, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
    Other versions:
  27. Peter N. Ireland, 2007. "Changes in the Federal Reserve's Inflation Target: Causes and Consequences," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(8), pages 1851-1882, December. [Downloadable!] (restricted)
    Other versions:
  28. John M. Roberts, 1998. "Inflation expectations and the transmission of monetary policy," Finance and Economics Discussion Series 1998-43, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  29. John M. Roberts, 2007. "Learning, Sticky Inflation, and the Sacrifice Ratio," Kiel Working Papers 1365, Kiel Institute for the World Economy. [Downloadable!]
  30. Todd E. Clark & Taisuke Nakata, 2008. "Has the behavior of inflation and long-term inflation expectations changed?," Economic Review, Federal Reserve Bank of Kansas City, issue Q I, pages 17-50. [Downloadable!]
  31. Anatoliy Belaygorod & Michael J. Dueker, 2005. "Discrete monetary policy changes and changing inflation targets in estimated dynamic stochastic general equilibrium models," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 719-34. [Downloadable!]
  32. Giorgio Primiceri, 2005. "Why Inflation Rose and Fell: Policymakers' Beliefs and US Postwar Stabilization Policy," NBER Working Papers 11147, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  33. Peter Tinsley & Sharon Kozicki, 2003. "Alternative Sources of the Lag Dynamics of Inflation," Computing in Economics and Finance 2003 92, Society for Computational Economics. [Downloadable!]
    Other versions:
  34. Frederic S. Mishkin, 2007. "Inflation Dynamics," International Finance, Blackwell Publishing, vol. 10(3), pages 317-334, December. [Downloadable!] (restricted)
    Other versions:
  35. Timothy Cogley & Giorgio E. Primiceri & Thomas J. Sargent, 2008. "Inflation-Gap Persistence in the U.S," NBER Working Papers 13749, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  36. Sharon Kozicki & P.A. Tinsley, 2006. "Survey-Based Estimates of the Term Structure of Expected U.S. Inflation," Working Papers 06-46, Bank of Canada. [Downloadable!]
  37. Roberts, John M., 1997. "Is inflation sticky?," Journal of Monetary Economics, Elsevier, vol. 39(2), pages 173-196, July. [Downloadable!] (restricted)
    Other versions:
  38. Ang, Andrew & Bekaert, Geert & Wei, Min, 2007. "Do macro variables, asset markets, or surveys forecast inflation better?," Journal of Monetary Economics, Elsevier, vol. 54(4), pages 1163-1212, May. [Downloadable!] (restricted)
    Other versions:
  39. Sophocles N. Brissimis & Nicholas S. Magginas, 2008. "Inflation Forecasts and the New Keynesian Phillips Curve," International Journal of Central Banking, International Journal of Central Banking, vol. 4(2), pages 1-22, June. [Downloadable!]
    Other versions:
  40. Kozicki, Sharon & Tinsley, P A, 1998. "Moving Endpoints and the Internal Consistency of Agents' Ex Ante Forecasts," Computational Economics, Springer, vol. 11(1-2), pages 21-40, April. [Downloadable!]
    Other versions:
  41. Timothy Cogley & Argia M. Sbordone, 2008. "Trend Inflation, Indexation, and Inflation Persistence in the New Keynesian Phillips Curve," American Economic Review, American Economic Association, vol. 98(5), pages 2101-26, December. [Downloadable!]
  42. Michael T. Kiley, 2008. "Monetary policy actions and long-run inflation expectations," Finance and Economics Discussion Series 2008-03, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  43. Klaus Adam & Mario Padula, 2003. "Inflation dynamics and subjective expectations in the United States," Working Paper Series 222, European Central Bank. [Downloadable!]
    Other versions:
  44. Flint Brayton & Eileen Mauskopf & David Reifschneider & Peter Tinsley & John Williams, 1997. "The role of expectations in the FRB/US macroeconomic model," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Apr, pages 227-245. [Downloadable!]
  45. Dean Croushore, 2006. "An evaluation of inflation forecasts from surveys using real-time data," Working Papers 06-19, Federal Reserve Bank of Philadelphia. [Downloadable!]
  46. Christopher D. Carroll, 2003. "Macroeconomic Expectations Of Households And Professional Forecasters," The Quarterly Journal of Economics, MIT Press, vol. 118(1), pages 269-298, February. [Downloadable!] (restricted)
    Other versions:
Full references

Statistics
Access and download statistics

Did you know? You may want to explore EconPapers, which displays the same data as IDEAS in a different way.

This page was last updated on 2009-11-18.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.