Losing the inflation anchor

Ricardo Reis

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Inflation has an anchor in people’s expectations of what its long-run value will be. If expectations persistently change, then the anchor is adrift; if they differ from the central bank’s target, the anchor is lost. This paper uses data on expectations from market prices, from professional surveys, and from the cross-sectional distribution of household surveys to measure shifts in this anchor. Its main application is to the US Great Inflation. The data suggests that the anchor started drifting as early as 1967 and that this could have been spotted well before policymakers did. Using this approach on expectations data from Brazil, Turkey, South Africa, the US in the 1970s, and the US in 2021, confirms their usefulness to measure the inflation anchor in real time.

JEL-codes: J1 N0 (search for similar items in EconPapers)
Date: 2022-06-24
New Economics Papers: this item is included in nep-cba and nep-his
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Citations: View citations in EconPapers (6)

Published in Brookings Papers on Economic Activity, 24, June, 2022. ISSN: 0007-2303

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http://eprints.lse.ac.uk/112462/ Open access version. (application/pdf)

Related works:
Journal Article: Losing the Inflation Anchors (2021)
Working Paper: Losing the inflation anchor (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:112462

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