A New Model of Trend Inflation Using Disaggregates, Survey Expectations, and Uncertainty

Ellis Tallman and Saeed Zaman

No 26-08, Working Papers from Federal Reserve Bank of Cleveland

Abstract: This paper develops a new empirical model that estimates trend inflation by combining modeling features that have advanced the literature on trend inflation over the past two decades. These features include incorporating information about long-term inflation expectations from surveys in a flexible way, modeling aggregate inflation via sectoral data (goods and services), allowing for stochastic volatility (SV) in the shocks to the trend and transitory components of inflation, allowing for a time-varying price Phillips curve, and allowing for time-varying uncertainty effects on the level of inflation. We estimate the model using state-of-the-art Bayesian methods. We document the competitive properties of the new model compared to variants that include only a subset of the above features. The new model provides a more interpretable historical decomposition of inflation data than the models it extends. The decomposition suggests that uncertainty effects play a greater role than cyclical effects in explaining inflation fluctuations.

Keywords: disaggregates of inflation; inflation uncertainty; trend inflation; inflation expectations; nonlinear state space; Bayesian methods (search for similar items in EconPapers)
JEL-codes: C11 C32 E31 (search for similar items in EconPapers)
Pages: 47
Date: 2026-03-24
New Economics Papers: this item is included in nep-mon
Note: See appendix
References: Add references at CitEc
Citations:

Downloads: (external link)
https://doi.org/10.26509/frbc-wp-202608 Persistent link (text/html)
https://www.clevelandfed.org/-/media/project/cleve ... pers/2026/wp2608.pdf Full text (application/pdf)
https://www.clevelandfed.org/-/media/project/cleve ... /wp2608_appendix.pdf Online appendix (application/pdf)

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:fedcwq:102922

Ordering information: This working paper can be ordered from

DOI: 10.26509/frbc-wp-202608

Access Statistics for this paper

More papers in Working Papers from Federal Reserve Bank of Cleveland Contact information at EDIRC.
Bibliographic data for series maintained by 4D Library ().