Expected and Realized Inflation in Historical Perspective

Carola Binder and Rupal Kamdar

Journal of Economic Perspectives, 2022, vol. 36, issue 3, 131-56

Abstract: This paper provides historical context for the relationship between expected and realized inflation. We begin with a discussion of early theoretical thought about how inflation expectations are formed. Then, we discuss survey- and asset-based measures of inflation expectations and assess their empirical relationship with realized inflation. Expected and realized inflation are strongly correlated over long samples, but over short samples the correlations can weaken. Lastly, to better understand the subtleties of the interaction between expected and realized inflation over short-lived but important events, we provide a narrative account of the relationship during the Great Depression of the 1930s, the Great Inflation of the 1970s, the Great Recession of 2008–2009, and the recent COVID-19 pandemic. These episodes offer compelling evidence of the importance of expectations and policy regime changes in inflation dynamics.

JEL-codes: E12 E13 E31 E32 E43 E52 N12 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (15)

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DOI: 10.1257/jep.36.3.131

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