Discussion paper

DP13900 Anchored Inflation Expectations

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.


Carvalho, C, S Eusepi, E Moench and B Preston (2019), ‘DP13900 Anchored Inflation Expectations‘, CEPR Discussion Paper No. 13900. CEPR Press, Paris & London. https://cepr.org/publications/dp13900