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The dynamics of UK and US inflation expectations

  • Gefang, Deborah
  • Koop, Gary
  • Potter, Simon M.

The relationship between short term and long term inflation expectations in the US and the UK is investigated with a focus on inflation pass through (i.e. how changes in short term expectations affect long term expectations). An econometric methodology is used which allows for the uncovering of the relationship between inflation pass through and various explanatory variables. Empirical results are related to theoretical models of anchored, contained and unmoored inflation expectations. For neither country are anchored or unmoored inflation expectations found. For the US, contained inflation expectations are found. For the UK, empirical findings are not consistent with the specific model of contained inflation expectations presented here, but are consistent with a broader view of expectations being constrained by the existence of an inflation target.

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Article provided by Elsevier in its journal Computational Statistics & Data Analysis.

Volume (Year): 56 (2012)
Issue (Month): 11 ()
Pages: 3120-3133

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Handle: RePEc:eee:csdana:v:56:y:2012:i:11:p:3120-3133
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  1. G├╝rkaynak, 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.
  2. Andrew Ang & Geert Bekaert & Min Wei, 2006. "Do macro variables, asset markets, or surveys forecast inflation better?," Finance and Economics Discussion Series 2006-15, Board of Governors of the Federal Reserve System (U.S.).
  3. Jon Faust & Dale W. Henderson, 2004. "Is inflation targeting best-practice monetary policy?," International Finance Discussion Papers 807, Board of Governors of the Federal Reserve System (U.S.).
  4. James H. Stock & Mark W. Watson, 2006. "Why Has U.S. Inflation Become Harder to Forecast?," NBER Working Papers 12324, National Bureau of Economic Research, Inc.
  5. Todd E. Clark & Taeyoung Doh, 2011. "A Bayesian evaluation of alternative models of trend inflation," Working Paper 1134, Federal Reserve Bank of Cleveland.
  6. Nicola Anderson & John Sleath, 2001. "New estimates of the UK real and nominal yield curves," Bank of England working papers 126, Bank of England.
  7. Markus Jochmann & Gary Koop & Simon M. Potter, 2009. "Modeling the Dynamics of Inflation Compensation," Working Paper Series 15_09, The Rimini Centre for Economic Analysis, revised Jan 2009.
  8. James H. Stock & Mark W. Watson, 2007. "Erratum to "Why Has U.S. Inflation Become Harder to Forecast?"," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(7), pages 1849-1849, October.
  9. Geweke, John & Keane, Michael, 2007. "Smoothly mixing regressions," Journal of Econometrics, Elsevier, vol. 138(1), pages 252-290, May.
  10. Todd E. Clark & Stephen J. Terry, 2009. "Time variation in the inflation passthrough of energy prices," Research Working Paper RWP 09-06, Federal Reserve Bank of Kansas City.
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