THE ANCHORING OF INFLATION EXPECTATIONS IN THE SHORT AND IN THE LONG RUN

Dieter Nautz, Till Strohsal and Aleksei Netšunajev

Macroeconomic Dynamics, 2019, vol. 23, issue 5, 1959-1977

Abstract: This paper introduces structural VAR analysis as a tool for investigating the anchoring of inflation expectations. We show that US consumers' inflation expectations are anchored in the long run because macro-news shocks are long-run neutral for long-term inflation expectations. The identification of structural shocks helps to explain why inflation expectations deviate from the central bank's target. Our results indicate that the recent decline in long-term inflation expectations does not result from deanchoring macro-news but can be attributed to downward adjustments in consumers' expectations about the central bank's inflation target.

Date: 2019
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Related works:
Working Paper: The Anchoring of Inflation Expectations in the Short and in the Long Run (2017)
Working Paper: The anchoring of inflation expectations in the short and in the long run (2016)
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