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Inflation regimes and inflation expectations

  • Joseph E. Gagnon

This paper examines the formation of expectations about future inflation over long horizons. A key issue that agents must confront is the possibility that the economic policy framework— especially the monetary policy regime—could change at some future date. Agents are likely to base inferences about possible future regimes on experience over many years and decades past. This aspect of expectations formation may explain why inflation premiums in long-term bond yields are higher in countries with a long history of high inflation.

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Article provided by Federal Reserve Bank of St. Louis in its journal Review.

Volume (Year): (2008)
Issue (Month): May ()
Pages: 229-243

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Handle: RePEc:fip:fedlrv:y:2008:i:may:p:229-243:n:v.90no.3,pt.2
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    • Driffill, John & Mizon, Grayham E. & Ulph, Alistair, 1990. "Costs of inflation," Handbook of Monetary Economics, in: B. M. Friedman & F. H. Hahn (ed.), Handbook of Monetary Economics, edition 1, volume 2, chapter 19, pages 1013-1066 Elsevier.
  8. Chapman, D.A., 1992. "Cotrending and the Stationarity of the Real Interest Rate," RCER Working Papers 330, University of Rochester - Center for Economic Research (RCER).
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  14. Lahiri, Kajal & Teigland, Christie, 1987. "On the normality of probability distributions of inflation and GNP forecasts," International Journal of Forecasting, Elsevier, vol. 3(2), pages 269-279.
  15. Evans, Martin D D & Lewis, Karen K, 1995. " Do Expected Shifts in Inflation Affect Estimates of the Long-Run Fisher Relation?," Journal of Finance, American Finance Association, vol. 50(1), pages 225-53, March.
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