The term structure of inflation forecasts disagreement and monetary policy transmission

Alessandro Barbera, Fan Dora Xia and Sonya Zhu

No 1114, BIS Working Papers from Bank for International Settlements

Abstract: The term structure of inflation forecasts disagreement in the US can be summarized by two components: disagreement about the trend inflation, and disagreement about the cyclical inflation. While the former has identical impacts on forecasts disagreement across forecasting horizons, the latter has more muted impacts on forecasts disagreement at longer forecasting horizons. Only the cyclical inflation disagreement has a significant impact on monetary policy efficacy. High disagreement about the cyclical inflation undermines the transmission of monetary policy to both real economy and financial markets. Active communication from the Federal Reserve with the general public is a useful tool to reduce inflation disagreement, especially disagreement about the cyclical inflation.

Keywords: inflation expectation; forecasts disagreement; monetary policy transmission (search for similar items in EconPapers)
JEL-codes: E31 E37 E52 (search for similar items in EconPapers)
Date: 2023-08
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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