Disagreement About the Term Structure of Inflation Expectations

Hie Joo Ahn and Leland Farmer
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Hie Joo Ahn: https://www.federalreserve.gov/econres/hie-joo-ahn.htm

No 2024-084, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We develop a model of the individual term structure of inflation expectations across forecasting horizons. Using the Survey of Professional Forecasters, we decompose disagreement about inflation expectations into individuals' long-term beliefs, private information, and public information. We find that in normal times, long-horizon disagreement is predominantly driven by individuals' long-term beliefs, while short-horizon disagreement stems from private information. During economic downturns, heterogeneous reactions to public information become a key driver of disagreement at all horizons. When forecasters disagree about public information, monetary policy exhibits a delayed response and a price puzzle emerges, underscoring the importance of anchoring inflation expectations.

Keywords: Inflation Expectations; Term Structure; Disagreement; Monetary Policy (search for similar items in EconPapers)
JEL-codes: E17 E31 E37 E52 E58 E65 (search for similar items in EconPapers)
Pages: 84 p.
Date: 2024-09-27
New Economics Papers: this item is included in nep-ban, nep-cba and nep-mon
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2024-84

DOI: 10.17016/FEDS.2024.084

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