Anchored Inflation Expectations

Carlos Carvalho, Stefano Eusepi, Emanuel Moench and Bruce Preston

American Economic Journal: Macroeconomics, 2023, vol. 15, issue 1, 1-47

Abstract: We develop a theory of low-frequency movements in inflation expectations, and use it to interpret joint dynamics of inflation and inflation expectations for the United States and other countries over the postwar period. In our theory, long-run inflation expectations are endogenous. They are driven by short-run inflation surprises, in a way that depends on recent forecasting performance and monetary policy. This distinguishes our theory from common explanations of low-frequency properties of inflation. The model, estimated using only inflation and short-term forecasts from professional surveys, accurately predicts observed measures of long-term inflation expectations and identifies episodes of unanchored expectations.

JEL-codes: D83 D84 E12 E23 E31 E37 E52 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (27)

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Related works:
Working Paper: Anchored inflation expectations (2020)
Working Paper: Anchored Inflation Expectations (2019)
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DOI: 10.1257/mac.20200080

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