Home About Latest Browse RSS Advanced Search

Federal Reserve Bank of Richmond
Economic Quarterly
On the sources of movements in inflation expectations : a few insights from a VAR model
Yash P. Mehra
Christopher Herrington
Abstract

Using a VAR model that includes a survey measure of expected inflation, this article investigates the responses of expected inflation to temporary shocks to macroeconomic variables during three sample periods, 1953:1--1979:1, 1979:2--2001:1, and 1985:1--2007:1. Shocks to actual inflation, commodity prices, and expected inflation itself have been three major sources of movement in expected inflation, together explaining over 80 percent of the variability in expected inflation. Positive shocks to actual inflation, commodity prices, and expected inflation itself lead to increases in expected inflation that are large and long-lasting in the pre-1979 sample period, but muted and short-lived in post-1979 sample periods. Oil price shocks have only transitory effects on expected inflation. The positive response of expected inflation to higher oil prices found in the pre-1979 sample period is absent in post-1979 sample periods, suggesting that the Federal Reserve may have earned credibility.


Download Full text
Cite this item
Yash P. Mehra & Christopher Herrington, "On the sources of movements in inflation expectations : a few insights from a VAR model" , Federal Reserve Bank of Richmond, Economic Quarterly, issue Spr, pages 121-146, 2008.
More from this series
JEL Classification:
Subject headings:
Keywords: Inflation (Finance) ; Macroeconomics ; Monetary policy
For corrections, contact Christian Pascasio ()
Fed-in-Print is the central catalog of publications within the Federal Reserve System. It is managed and hosted by the Economic Research Division, Federal Reserve Bank of St. Louis.

Privacy Legal