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Inflation Expectations and the Stabilization of Inflation : Alternative Hypotheses

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  • Jeremy J. Nalewaik

Abstract

This paper examines two candidate hypotheses explaining the stabilization of U.S. inflation since the 1970s and 1980s. The first explanation credits the stabilization of inflation expectations, and assumes those expectations have a strong positive causal effect on actual subsequent inflation, while the second explanation credits the disappearance of such a strong positive causal effect. The paper reports statistical tests favorable to both a stabilization of inflation expectations and a marked decline in the effect of the general public?s inflation expectations on subsequent inflation.

Suggested Citation

  • Jeremy J. Nalewaik, 2016. "Inflation Expectations and the Stabilization of Inflation : Alternative Hypotheses," Finance and Economics Discussion Series 2016-035, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:2016-35
    DOI: 10.17016/FEDS.2016.035
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    More about this item

    Keywords

    Inflation; Phillips Curve;

    JEL classification:

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

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