The Curious Case of the Rise in Deflation Expectations

Olivier Armantier, Gizem Kosar, Jason Somerville, Giorgio Topa, Wilbert van der Klaauw and John Williams
Additional contact information
Jason Somerville: https://www.newyorkfed.org/research/economists/somerville

No 1037, Staff Reports from Federal Reserve Bank of New York

Abstract: We study the behavior of U.S. consumers’ inflation expectations during the high inflation period of 2021-23 using data from the New York Fed’s Survey of Consumer Expectations. Inflation expectations rose and fell as inflation surged and then moderated, but with notable differences across forecast horizons. Inflation uncertainty and disagreement also rose markedly and then abated. Despite the sharp rise in inflation, we see a sizable increase in the left tail of the distribution of medium- and longer-term expectations and increased expectations of deflation. Using a pair of special surveys, we find that those who expect deflation are more likely to expect price mean reversion and generally expect better, not worse, economic outcomes. We show that although a standard learning model of inflation expectations formation captures some of the movements in inflation expectations and inflation uncertainty over this period, the model is not able to replicate the timing of the rise in medium-term expectations and inflation uncertainty, some aspects of disagreement, or the rise in deflation expectations.

Keywords: inflation; deflation; expectations; consumer surveys (search for similar items in EconPapers)
JEL-codes: D12 D84 E31 E52 (search for similar items in EconPapers)
Pages: 59
Date: 2022-10-01
New Economics Papers: this item is included in nep-ban, nep-cba and nep-mon
Note: Revised November 2023.
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr1037.pdf Full text (application/pdf)
https://www.newyorkfed.org/research/staff_reports/sr1037.html Summary (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fednsr:94960

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Staff Reports from Federal Reserve Bank of New York Contact information at EDIRC.
Bibliographic data for series maintained by Gabriella Bucciarelli ().