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Tracking U.S. Inflation Expectations with Domestic and Global Indicators

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  • Efrem Castelnuovo

    ()
    (University of Padua)

Abstract

Are foreign variables important for tracking U.S. inflation expectations? This paper estimates a reduced-form model which takes into account both domestic and global indicators of economic slack as well as inflationary pressures. Our main findings point towards the instability of the estimated parameters over the last four decades. In particular, global indicators appear to have played a significant role in shaping forecasters' expectations until the mid-'80s. By contrast, the U.S. monetary policy stance turns out to be relevant in the '80s and '90s. We relate this finding to the more aggressive monetary policy conduct implemented by the Fed since the end of the Volcker experiment.

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Paper provided by Dipartimento di Scienze Economiche "Marco Fanno" in its series "Marco Fanno" Working Papers with number 0031.

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Length: 28 pages
Date of creation: Dec 2006
Date of revision:
Handle: RePEc:pad:wpaper:0031

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Keywords: inflation expectations; globalization; domestic factors; global factors; monetary policy switch;

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