Discussion Paper Details

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Title: Anchored Inflation Expectations

Author(s): Stefano Eusepi, Emanuel Moench, Bruce Preston and Carlos Viana de Carvalho

Publication Date: July 2019

Keyword(s): Anchored expectations, Inflation expectations and survey data

Programme Area(s): Monetary Economics and Fluctuations

Abstract: We develop a theory of low-frequency movements in inflation expectations, and use it to interpret joint dynamics of inflation and inflation expectations for the United States and other countries over the post-war period. In our theory long-run inflation expectations are endogenous. They are driven by short-run inflation surprises, in a way that depends on recent forecasting performance and monetary policy. This distinguishes our theory from common explanations of low-frequency properties of inflation. The model, estimated using only inflation and short-term forecasts from professional surveys, accurately predicts observed measures of long-term inflation expectations and identifies episodes of unanchored expectations.

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Bibliographic Reference

Eusepi, S, Moench, E, Preston, B and Viana de Carvalho, C. 2019. 'Anchored Inflation Expectations'. London, Centre for Economic Policy Research.