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The Joint Dynamics of U.S. and Euro-area Inflation Rates: Expectations and Time-varying Uncertainty

Olesya Grishchenko (), Sarah Mouabbi () and Jean-Paul Renne

Working papers from Banque de France

Abstract: We use several U.S. and euro-area surveys of professional forecasters to estimate a dynamic factor model of inflation with time-varying uncertinty. We obtain survey-consistent distributions of future inflation at any horizon, both in the United States and in the euro area. Our methodology allows us to compute, in closed form, survey-consistent measures of inflation expectations, inflation uncertainty, inflation expectations anchoring, deflation probabilities and U.S. and euro-area inflation co-movements. Our results suggest strong commonalities between inflation dynamics in the two economies.

Keywords: inflation; surveys of professional forecasters; dynamic factor model with stochastic volatility; term structure of inflation expectations and inflation uncertainty; anchoring of inflation expectations (search for similar items in EconPapers)
JEL-codes: C32 E31 E44 (search for similar items in EconPapers)
Pages: 58 pages
Date: 2017
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac and nep-mon
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