Working Paper

Long memory in inflation expectations: evidence from international expectations

Abstract: This study provides evidence that 10-year-ahead inflation expectations adapt very slowly to changes in realized inflation. This evidence derives primarily from yields on 10-year government bonds in a sample of OECD countries, including inflation-indexed bonds where they are available. The study examines both the cross-country and time-series behavior of interest rates and inflation rates. For the United States, additional evidence is provided from a survey of 10-year inflation expectations held by market participants. This study does not present a theoretical model of expectations formation. However, long memory of the type documented in this study would be implied by a model of multiple inflationary regimes in which agents base their probability distributions of future regimes on past inflationary experience.

Keywords: Inflation (Finance);

Bibliographic Information

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

Part of Series: International Finance Discussion Papers

Publication Date: 1996

Number: 538