Working Paper

Disagreement About the Term Structure of Inflation Expectations

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;

JEL Classification: E17; E31; E37; E52; E58; E65;

https://doi.org/10.17016/FEDS.2024.084

Bibliographic Information

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

Part of Series: Finance and Economics Discussion Series

Publication Date: 2024-09-27

Number: 2024-084