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Author:Hajdini, Ina 

Journal Article
Indirect Consumer Inflation Expectations

Surveys often measure consumers’ inflation expectations by asking directly about prices in general or overall inflation, concepts that may not be well-defined for some individuals. In this Commentary, we propose a new, indirect way of measuring consumer inflation expectations: Given consumers’ expectations about developments in prices of goods and services during the next 12 months, we ask them how their incomes would have to change to make them equally well-off relative to their current situation such that they could buy the same amount of goods and services as they can today. Using a ...
Economic Commentary , Volume 2022 , Issue 03 , Pages 9

Working Paper
Low Passthrough from Inflation Expectations to Income Growth Expectations: Why People Dislike Inflation

Using a novel experimental setup, we study the direction of causality between consumers’ inflation expectations and their income growth expectations. In a large, nationally representative survey of US consumers, we find that the rate of passthrough from expected inflation to expected income growth is incomplete, on the order of 20 percent. There is no statistically significant effect going in the other direction. Passthrough varies systematically with demographic and socioeconomic factors, with greater passthrough for higher-income individuals than lower-income individuals, although it is ...
Working Papers , Paper 22-21

Working Paper
The Expectations of Others

Based on a framework of memory and recall that accounts for social networks, we provide conditions under which social networks can amplify expectations. We provide evidence for several predictions of the model using a novel dataset on inflation expectations and social network connections: Inflation expectations in the social network are statistically significantly, positively associated with individual inflation expectations; the relationship is stronger for groups that share common demographic characteristics, such as gender, income, or political affiliation. An instrumental variable ...
Working Papers , Paper 23-22

Journal Article
Implications of Bank Equity Price Declines for Inflation

This Economic Commentary examines the relationship between bank equity price index returns and inflation in advanced economies. While large declines in bank equity price indices are generally followed by declines in the ratio of bank credit to GDP, a measure of credit supply, and economic activity as measured by GDP, they have essentially no effect on inflation. These findings suggest that the collapse of several regional banks in early 2023 would not, on its own, put downward pressure on inflation.
Economic Commentary , Volume 2023 , Issue 18 , Pages 6

Journal Article
Trend Inflation and Implications for the Phillips Curve

This Economic Commentary estimates trend PCE inflation and a Phillips curve with time-varying parameters while allowing for trend inflation to affect the frequency at which firms change prices. Since the beginning of 2021, trend PCE inflation has risen well above the FOMC’s 2 percent long-term inflation target, and the most recent estimate of trend inflation in 2022:Q4 is 3.4 percent. With the increase in trend inflation, the Phillips curve slope has risen above its prepandemic level. At the same time, the relationship between current inflation and inflation expectations has strengthened. ...
Economic Commentary , Volume 2023 , Issue 07 , Pages 6

Working Paper
Wealth Effects, Price Markups, and the Neo-Fisherian Hypothesis

By introducing Jaimovich-Rebelo (JR) consumption-labor nonseparable preferences into an otherwise standard New Keynesian model, we show that the occurrence of positive comovement between inflation and the nominal interest rate conditional on a nominal shock - the so-called neo-Fisherian hypothesis - depends on the extent of wealth effects in households’ labor supply decisions. Neo-Fisherianism appears more prominent in economic environments with i) weaker wealth effects on labor supply (in particular for Greenwood-Hercowitz-Huffmann preferences where wealth effects are absent), and ii) ...
Working Papers , Paper 21-27

Working Paper
Mis-specified Forecasts and Myopia in an Estimated New Keynesian Model

The paper considers a New Keynesian framework in which agents form expectations based on a combination of mis-specified forecasts and myopia. The proposed expectations formation process is found to be consistent with all three empirical facts on consensus inflation forecasts, namely, that forecasters under-react to ex-ante forecast revisions, that forecasters over-react to recent events, and that the response of forecast errors to a shock initially under-shoots but then over-shoots. The paper then derives the general equilibrium solution consistent with the proposed expectations formation ...
Working Papers , Paper 22-03

Working Paper
Mis-specified Forecasts and Myopia in an Estimated New Keynesian Model

The paper considers a New Keynesian framework in which agents form expectations based on a combination of autoregressive mis-specified forecasts and myopia. The proposed expectations formation process is shown to be consistent with all three empirical facts on consensus inflation forecasts. However, while mis-specified forecasts can be both sufficient and necessary to match all three facts, myopia alone is neither. The paper then derives the general equilibrium solution consistent with the proposed expectations formation process and estimates the model with likelihood-based Bayesian methods, ...
Working Papers , Paper 22-03R

Working Paper
Indirect Consumer Inflation Expectations: Theory and Evidence

Based on indirect utility theory, we introduce a novel methodology of measuring inflation expectations indirectly. This methodology starts at the individual level, asking consumers about the change in income required to buy the same amounts of goods and services one year ahead. Analytically, our methodology possesses smaller ex-post aggregate inflation forecast errors relative to forecasts based on conventional survey questions. We ask this question in a large-scale, high-frequency survey of consumers in the US and 14 countries, and we show that indirect consumer inflation expectations ...
Working Papers , Paper 22-35

Working Paper
Low Passthrough from Inflation Expectations to Income Growth Expectations: Why People Dislike Inflation

We implement a novel methodology to disentangle two-way causality in inflation and income expectations in a large, nationally representative survey of US consumers. We find a 20 percent passthrough from expected inflation to expected income growth, but no statistically significant effect in the other direction. Passthrough is higher for higher-income individuals and men. Higher inflation expectations increase consumers’ likelihood to search for higher-paying new jobs. In a calibrated search-and-matching model, dampened responses of wages to demand and supply shocks translate into greater ...
Working Papers , Paper 22-21R

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