Measuring the level and uncertainty of trend inflation

Elmar Mertens

No 2011-42, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Firmly-anchored inflation expectations are widely viewed as playing a central role in the successful conduct of monetary policy. This paper presents estimates of trend inflation, based on information contained in survey expectations, the term structure of interest rates, and realized inflation rates. My application combines a variety of data sources at the monthly frequency and it can flexibly handle missing data arising from infrequent observations and limited data availability. In order to assess whether inflation expectations are anchored, uncertainty surrounding future changes in trend inflation--measured by a time-varying volatility of trend shocks--is estimated as well. ; Not surprisingly, the estimates suggest that trend inflation in the U.S. rose and fell again over the 1970s and 1980s, accompanied by increases in uncertainty. Considering the recent crisis, full-sample estimates of trend inflation fell quite a bit, but not too dramatically. In contrast, real-time estimates recorded sizeable increases of trend uncertainty during the crisis of 2007/2008, which have abated since then.

Keywords: Inflation; (Finance); -; United; States (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Citations: View citations in EconPapers (16)

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Related works:
Journal Article: Measuring the Level and Uncertainty of Trend Inflation (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2011-42

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