Long-Run Inflation Expectations

Jonas Fisher, Leonardo Melosi and Sebastian Rast

No WP 2025-03, Working Paper Series from Federal Reserve Bank of Chicago

Abstract: Professional forecasters’ long-run inflation expectations overreact to news and exhibit persistent, predictable biases in forecast errors. A model incorporating overconfidence in private information and a persistent expectations bias—which generates persistent forecast errors across most forecasters—accounts for these two features of the data, offering a valuable tool for studying long-run inflation expectations. Our analysis highlights substantial, time-varying heterogeneity in forecasters’ responses to public information, with sensitivity declining across all forecasters when monetary policy is constrained by the effective lower bound. The model provides a framework to evaluate whether policymakers’ communicated inflation paths are consistent with anchored long-run expectations.

Keywords: Central bank communication; anchoring (search for similar items in EconPapers)
JEL-codes: D83 E31 E37 E52 (search for similar items in EconPapers)
Pages: 57
Date: 2025-03
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DOI: 10.21033/wp-2025-03

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