Inflation Expectations, Price Equations, and Fed Effects

Ray Fair
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Ray Fair: Yale University

No 2401, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: This paper makes three main contributions. First, inflation expectation equations are estimated using quarterly time series data. Second, a price equation in level form is estimated that is consistent with the data, unlike Phillips-curve equations. Third, the case is considered in which an expectation variable in an inflation or price equation is not causal. The results suggest that household inflation expectations are mostly affected by current and past inflation. The Fed through interest rates has a modest effect. In the estimated price equation a measure of the expected future price level is significant, although it may not be causal. Whether it is or not, the results show that the Fed’s ability to affect inflation is modest since its effect on expectations is modest.

Pages: 23 pages
Date: 2024-08
New Economics Papers: this item is included in nep-cba, nep-inv and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:cwl:cwldpp:2401

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