Working Paper

Inflation Expectations and the Stabilization of Inflation : Alternative Hypotheses

Abstract: This paper examines two candidate hypotheses explaining the stabilization of U.S. inflation since the 1970s and 1980s. The first explanation credits the stabilization of inflation expectations, and assumes those expectations have a strong positive causal effect on actual subsequent inflation, while the second explanation credits the disappearance of such a strong positive causal effect. The paper reports statistical tests favorable to both a stabilization of inflation expectations and a marked decline in the effect of the general public?s inflation expectations on subsequent inflation.

Keywords: Inflation; Phillips Curve;

JEL Classification: E31; E52;

https://doi.org/10.17016/FEDS.2016.035

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: Finance and Economics Discussion Series

Publication Date: 2016-04-21

Number: 2016-035

Pages: 58 pages