DP13900 Anchored Inflation Expectations
Author(s): | Stefano Eusepi, Emanuel Moench, Bruce Preston, Carlos Viana de Carvalho |
Publication Date: | July 2019 |
Date Revised: | April 2021 |
Keyword(s): | Anchored expectations, Inflation expectations, survey data |
JEL(s): | D83, D84, E32 |
Programme Areas: | Monetary Economics and Fluctuations |
Link to this Page: | cepr.org/active/publications/discussion_papers/dp.php?dpno=13900 |
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.