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Journal Article
The role of expectations in the FRB/US macroeconomic model
Mauskopf, Eileen; Reifschneider, David L.; Tinsley, Peter A.; Williams, John; Brayton, Flint (1997-04)
In the past year, the staff of the Board of Governors of the Federal Reserve System began using a new macroeconomic model of the U.S. economy referred to as the FRB/US model. This system of mathematical equations, describing interactions among economic measures such as inflation, interest rates, and gross domestic product, is one of the tools used in economic forecasting and the analysis of macroeconomic policy issues at the Board. The FRB/US model replaces the MPS model, which, with periodic revisions, had been used at the Federal Reserve Board since the early 1970s. A key feature of the new ...
Federal Reserve Bulletin , Volume 83 , Issue Apr

Report
Inflation Expectations and Risk Premia in Emerging Bond Markets: Evidence from Mexico
Christensen, Jens H. E.; Zhu, Simon; Beauregard, Remy; Fischer, Eric (2021-03-01)
To study inflation expectations and associated risk premia in emerging bond markets, this paper provides estimates for Mexico based on an arbitrage-free dynamic term structure model of nominal and real bond prices that accounts for their liquidity risk. In addition to documenting the existence of large and time-varying liquidity premia in nominal and real bond prices that are only weakly correlated, the results indicate that long-term inflation expectations in Mexico are well anchored close to the inflation target of the Bank of Mexico. Furthermore, Mexican inflation risk premia are larger ...
Staff Reports , Paper 961

Discussion Paper
Expectations and the Final Mile of Disinflation
Crump, Richard K.; Eusepi, Stefano; Sahin, Aysegul (2024-03-05)
In the aftermath of the COVID-19 pandemic, the U.S. economy experienced a swift recovery accompanied by a sharp rise in inflation. Inflation has been gradually declining since 2022 without a notable slowdown in the labor market. Nonetheless, inflation remains above the Federal Reserve’s 2 percent target and the path of the so-called final mile remains uncertain, as emphasized by Chair Powell during his press conference in January. In this post, we examine the unemployment-inflation trade-off over the past few years through the lens of a New Keynesian Phillips curve, based on our recent ...
Liberty Street Economics , Paper 20240305

Report
Fundamental disagreement
Moench, Emanuel; Eusepi, Stefano; Andrade, Philippe; Crump, Richard K. (2013-12-01)
We use the term structure of disagreement of professional forecasters to document a novel set of facts: (1) forecasters disagree at all horizons, including the long run; (2) the term structure of disagreement differs markedly across variables: it is downward sloping for real output growth, relatively flat for inflation, and upward sloping for the federal funds rate; (3) disagreement is time-varying at all horizons, including the long run. These new facts present a challenge to benchmark models of expectation formation based on informational frictions. We show that these models require two ...
Staff Reports , Paper 655

Working Paper
Consumers' Attitudes and Their Inflation Expectations
Pfajfar, Damjan; Santoro, Emiliano; Ehrmann, Michael (2015-03-10)
This paper studies consumers' inflation expectations using micro-level data from the Surveys of Consumers conducted by University of Michigan. It shows that beyond the well-established socio-economic factors such as income, age or gender, other characteristics such as the households' financial situation and their purchasing attitudes are important determinants of their forecast accuracy. Respondents with current or expected financial difficulties, pessimistic attitudes about major purchases, or expectations that income will go down in the future have a stronger upward bias in their ...
Finance and Economics Discussion Series , Paper 2015-15

Report
Workers’ Perceptions of Earnings Growth and Employment Risk
Van der Klaauw, Wilbert; Koşar, Gizem (2023-02-01)
In addition to realized earnings and employment shocks, forward-looking individuals are presumed to condition their consumption and labor supply decisions on their subjective beliefs about future labor market risks. This paper uses rich panel data to document considerable individual heterogeneity in earnings growth expectations and in the perceived likelihood of voluntary and involuntary job exits. We examine how expectations evolve over the working life and business cycle, and how they co-vary with macroeconomic expectations and personal experiences. While largely consistent with patterns in ...
Staff Reports , Paper 1056

Discussion Paper
Coronavirus Outbreak Sends Consumer Expectations Plummeting
Armantier, Olivier; Koşar, Gizem; Topa, Giorgio; Skandalis, Daphne; Smith, Kyle; Van der Klaauw, Wilbert; Pomerantz, Rachel (2020-04-06)
The New York Fed’s Center for Microeconomic Data released results today from its March 2020 Survey of Consumer Expectations (SCE), which provides information on consumers' economic expectations and behavior. In particular, the survey covers respondents’ views on how income, spending, inflation, credit access, and housing and labor market conditions will evolve over time. The March survey, which was fielded between March 2 and 31, records a substantial deterioration in financial and economic expectations, including sharp declines in household income and spending growth expectations. As ...
Liberty Street Economics , Paper 20200406b

Working Paper
Mis-specified Forecasts and Myopia in an Estimated New Keynesian Model
Hajdini, Ina (2023-03-06)
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
Are Real Assets Owners Less Averse to Inflation? Evidence from Consumer Sentiments and Inflation Expectations
Li, Geng; Sinha, Nitish R. (2023-08-31)
Using data from the University of Michigan Surveys of Consumers, we document a significant negative association between consumer sentiment and inflation expectations, controlling for prevailing inflation in the economy. We further show that consumer sentiments of homeowners and stockowners are more sensitive to expected inflation than those of other consumers, a disparity at odds with the notion that owning such assets provides hedges against inflation. Leveraging data from the Survey of Consumer Expectations, we find three factors that help account for this difference. First, assets owners' ...
Finance and Economics Discussion Series , Paper 2023-058

Report
Subjective Intertemporal Substitution
Topa, Giorgio; Tambalotti, Andrea; Eusepi, Stefano; Crump, Richard K. (2015-07-01)
We estimate the elasticity of intertemporal substitution (EIS)—the response of expected consumption growth to changes in the real interest rate—using subjective expectations data from the New York Fed’s Survey of Consumer Expectations (SCE). This unique data set allows us to estimate the consumption Euler equation with no auxiliary assumptions on the properties of expectations, which are instead necessary when using choice data. We ﬁnd a subjective EIS of about 0.5, consistent with the results of much of the literature. In addition, planned consumption displays excess sensitivity to ...
Staff Reports , Paper 734

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