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Is the fed failing to re-anchor expectations? An analysis of jumps in inflation swaps

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  • Chibane, Messaoud
  • Kuhanathan, Ano

Abstract

We investigate US inflation expectations de-anchoring by analyzing tail behavior of inflation swaps. We extract probabilities of jumps in inflation expectations along with their potential jump severity and look through an event study approach and a regression analysis on how Fed policy impacted these. Our findings suggest that recent increases in interest rates and FOMC announcements of hikes did not manage to re-anchor short term inflation expectations as both probabilities and intensity of potential inflation boom/crash anticipations remain broadly independent of announcements and short-term interest rates dynamics.

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  • Chibane, Messaoud & Kuhanathan, Ano, 2023. "Is the fed failing to re-anchor expectations? An analysis of jumps in inflation swaps," Finance Research Letters, Elsevier, vol. 55(PB).
    • Handle: RePEc:eee:finlet:v:55:y:2023:i:pb:s1544612323003768
    DOI: 10.1016/j.frl.2023.104004
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    Cited by:

    1. Willem THORBECKE, 2023. "The Impact of Monetary Policy on the U.S. Stock Market since the Pandemic," Discussion papers 23054, Research Institute of Economy, Trade and Industry (RIETI).

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    More about this item

    Keywords

    Inflation expectations; De-anchoring; Monetary policy; Inflation swaps; Federal reserve;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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