Working Paper

Why Do We Think That Inflation Expectations Matter for Inflation? (And Should We?)

Abstract: Economists and economic policymakers believe that households' and firms' expectations of future inflation are a key determinant of actual inflation. A review of the relevant theoretical and empirical literature suggests that this belief rests on extremely shaky foundations, and a case is made that adhering to it uncritically could easily lead to serious policy errors.

Keywords: Phillips curve; Expectations; Inflation; Wage determination; Wage-price spiral;

JEL Classification: E31; E52;

https://doi.org/10.17016/FEDS.2021.062

Bibliographic Information

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

Part of Series: Finance and Economics Discussion Series

Publication Date: 2021-09-24

Number: 2021-062