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The term structure of inflation forecasts disagreement and monetary policy transmission

Author

Listed:
  • Alessandro Barbera
  • Dora Xia
  • Sonya Zhu

Abstract

The term structure of inflation forecasts disagreement in the US can be summarized by two components: disagreement about the trend inflation, and disagreement about the cyclical inflation. While the former has identical impacts on forecasts disagreement across forecasting horizons, the latter has more muted impacts on forecasts disagreement at longer forecasting horizons. Only the cyclical inflation disagreement has a significant impact on monetary policy efficacy. High disagreement about the cyclical inflation undermines the transmission of monetary policy to both real economy and financial markets. Active communication from the Federal Reserve with the general public is a useful tool to reduce inflation disagreement, especially disagreement about the cyclical inflation.

Suggested Citation

  • Alessandro Barbera & Dora Xia & Sonya Zhu, 2023. "The term structure of inflation forecasts disagreement and monetary policy transmission," BIS Working Papers 1114, Bank for International Settlements.
    • Handle: RePEc:bis:biswps:1114
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    References listed on IDEAS

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    More about this item

    Keywords

    inflation expectation; forecasts disagreement; monetary policy transmission;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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