The Role of Expectations in Changed Inflation Dynamics

Damjan Pfajfar and Damjan Pfajfar
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Damjan Pfajfar: Federal Reserve Board
Damjan Pfajfar: Federal Reserve Board
Authors registered in the RePEc Author Service: Damjan Pfajfar

International Journal of Central Banking, 2022, vol. 18, issue 1, 199-238

Abstract: The Phillips curve has been much flatter in the past 20 years than in the preceding decades. We consider two hypotheses. One is that prices at the microeconomic level are stickier than they used to be. The other is that expectations of firms and households about future inflation are now less well informed by macroeconomic conditions. We use inflation expectations from surveys to help distinguish between our two hypotheses empirically.We find that reduced attentiveness can, in some cases, account for three-fourths of the reduction in the sensitivity of inflation to economic conditions in recent decades.

JEL-codes: E31 E37 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (3)

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Related works:
Working Paper: The Role of Expectations in Changed Inflation Dynamics (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:ijc:ijcjou:y:2022:q:1:a:5

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