Decomposing the declining volatility of long-term inflation expectations

Todd Clark and Troy Davig

Journal of Economic Dynamics and Control, 2011, vol. 35, issue 7, 981-999

Abstract: The level and volatility of survey-based measures of long-term inflation expectations have come down dramatically over the past several decades. To capture these changes in inflation dynamics, we embed both short- and long-term expectations into a medium-scale VAR model with stochastic volatility. The model estimates attribute most of the marked decline in the volatility of expectations to smaller shocks to long-run inflation expectations. According to our estimates, the volatility of shocks plummeted in the early to mid-1980s, moved to a somewhat higher level that prevailed for much of the 1990s, and then declined to and remained at very low levels.

Keywords: Surveys; Stochastic; volatility; Bayesian; econometrics (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (40)

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Working Paper: Decomposing the declining volatility of long-term inflation expectations (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:35:y:2011:i:7:p:981-999

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