Measuring the slowly evolving trend in US inflation with professional forecasts

James Nason and Gregor Smith

Journal of Applied Econometrics, 2021, vol. 36, issue 1, 1-17

Abstract: Much research studies US inflation history with a trend‐cycle model with unobserved components, where the trend may be viewed as the Fed's evolving inflation target or long‐horizon expected inflation. We provide a novel way to measure the slowly evolving trend and the cycle (or inflation gap), by combining inflation predictions from the Survey of Professional Forecasters (SPF) with realized inflation. The SPF forecasts may be treated either as rational expectations (RE) or updating according to a sticky information (SI) law of motion. We estimate RE and SI state‐space models with stochastic volatility on samples of consumer price index and gross national product/gross domestic product deflator inflation and the associated SPF inflation predictions using a particle Metropolis–Markov chain Monte Carlo sampler. The trend converges to 2% and its volatility declines over time—two tendencies largely complete by the late 1990s.

Date: 2021
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Citations: View citations in EconPapers (6)

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https://doi.org/10.1002/jae.2784

Related works:
Working Paper: Measuring the Slowly Evolving Trend in US Inflation with Professional Forecasts (2014)
Working Paper: Measuring The Slowly Evolving Trend In Us Inflation With Professional Forecasts (2013)
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