IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Has the behavior of inflation and long-term inflation expectations changed?

  • Todd E. Clark
  • Taisuke Nakata

From 1975 to 1980, inflation in core (nonfood and nonenergy) consumer prices rose sharply as crude oil prices more than tripled. Yet, as crude oil prices quadrupled from late 2001 to 2007, core consumer price inflation remained essentially flat. Some observers have attributed the stability of consumer price inflation in the more recent episode to the influence of long-term inflation expectations. While inflation expectations rose significantly in the second half of the 1970s, they remained largely unchanged from 2001 through 2007. The increased stability of inflation and long-term expectations raises the possibility that the behavior of both variables has fundamentally changed. ; Recent discussion has focused on two possible forms of change: the influence of long-run expectations on inflation and the anchoring of inflation and expectations. A third possible source of change is smaller shocks to inflation, expectations, and other macroeconomic variables. Any of these changes in the behavior of inflation and long-term inflation expectations could have important implications for monetary policy. ; Clark and Nakata find some evidence that the dynamics of inflation and long-term inflation expectations have changed modestly. In particular, compared to 20 or more years ago, inflation and expectations appear to be slightly better anchored: Unexpected increases in inflation die out slightly faster and produce less of an increase in long-term expectations. However, the reduced volatility of inflation and expectations is largely due to smaller shocks.

If you experience problems downloading a file, check if you have the proper application to view it first. 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/ECONREV/PDF/1q08Clark.pdf
Download Restriction: no

Article provided by Federal Reserve Bank of Kansas City in its journal Economic Review.

Volume (Year): (2008)
Issue (Month): Q I ()
Pages: 17-50

as
in new window

Handle: RePEc:fip:fedker:y:2008:i:qi:p:17-50:n:v.93no.1
Contact details of provider: Postal: One Memorial Drive, Kansas City, MO 64198
Phone: (816) 881-2254
Web page: http://www.kansascityfed.org

More information through EDIRC

Order Information: Email:


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.:

as in new window
  1. Richard Clarida & Jordi Gali & Mark Gertler, 1998. "Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory," NBER Working Papers 6442, National Bureau of Economic Research, Inc.
  2. Ben S. Bernanke, 2007. "Inflation expectations and inflation forecasting," Speech 306, Board of Governors of the Federal Reserve System (U.S.).
  3. Randall S Kroszner, 2007. "The Changing Dynamics of Inflation," Business Economics, Palgrave Macmillan, vol. 42(3), pages 7-13, July.
  4. Lawrence J. Christiano & Martin Eichenbaum & Charles Evans, 1994. "The effects of monetary policy shocks: evidence from the flow of funds," Proceedings, Federal Reserve Bank of Dallas, issue Apr.
  5. 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.
  6. Giorgio E. Primiceri, 2005. "Time Varying Structural Vector Autoregressions and Monetary Policy," Review of Economic Studies, Oxford University Press, vol. 72(3), pages 821-852.
  7. Peter N. Ireland, 2005. "Changes in the Federal Reserve’s Inflation Target: Causes and Consequences," Boston College Working Papers in Economics 607, Boston College Department of Economics.
  8. repec:fip:fedgsq:y:2007:i:jul10 is not listed on IDEAS
  9. Clark, Todd E. & McCracken, Michael W., 2006. "The Predictive Content of the Output Gap for Inflation: Resolving In-Sample and Out-of-Sample Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(5), pages 1127-1148, August.
  10. Chang-Jin Kim & Charles R. Nelson, 1999. "Has The U.S. Economy Become More Stable? A Bayesian Approach Based On A Markov-Switching Model Of The Business Cycle," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 608-616, November.
  11. John M. Roberts, 2004. "Monetary policy and inflation dynamics," Finance and Economics Discussion Series 2004-62, Board of Governors of the Federal Reserve System (U.S.).
  12. Donald W.K. Andrews, 1990. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Cowles Foundation Discussion Papers 943, Cowles Foundation for Research in Economics, Yale University.
  13. Timothy Cogley & Giorgio E. Primiceri & Thomas J. Sargent, 2010. "Inflation-Gap Persistence in the US," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(1), pages 43-69, January.
  14. Orphanides, Athanasios, 2000. "The quest for prosperity without inflation," Working Paper Series 0015, European Central Bank.
  15. Frederic S. Mishkin, 2007. "Inflation Dynamics," International Finance, Wiley Blackwell, vol. 10(3), pages 317-334, December.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:fip:fedker:y:2008:i:qi:p:17-50:n:v.93no.1. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (LDayrit)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.