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Report
Term Structures of Inflation Expectations and Real Interest Rates: The Effects of Unconventional Monetary Policy
Aruoba, S. Boragan (2014-08-13)
Inflation expectations have recently received increased interest because of the uncertainty created by the Federal Reserve?s unprecedented reaction to the Great Recession. The effect of this reaction on the real economy is also an important topic. In this paper I use various surveys to produce a term structure of inflation expectations ? inflation expectations at any horizon from 3 to 120 months ? and an associated term structure of real interest rates. Inflation expectations extracted from this model track actual (ex-post) realizations of inflation quite well, and in terms of forecast ...
Staff Report , Paper 502

Report
Real-time inflation forecasting in a changing world
Groen, Jan J. J.; Ravazzolo, Francesco; Paap, Richard (2009-08-01)
This paper revisits the accuracy of inflation forecasting using activity and expectations variables. We apply Bayesian-model averaging across different regression specifications selected from a set of potential predictors that includes lagged values of inflation, a host of real activity data, term structure data, nominal data, and surveys. In this model average, we can entertain different channels of structural instability by incorporating stochastic breaks in the regression parameters of each individual specification within this average, allowing for breaks in the error variance of the ...
Staff Reports , Paper 388

Working Paper
Inflation dynamics: the role of public debt and policy regimes
Bhattarai, Saroj; Park, Woong Yong; Lee, Jae Won (2012)
We investigate the roles of a time-varying inflation target and monetary and fiscal policy stances on the dynamics of inflation in a DSGE model. Under an active monetary and passive fiscal policy regime, inflation closely follows the path of the inflation target and a stronger reaction of monetary policy to inflation decreases the equilibrium response of inflation to non-policy shocks. In sharp contrast, under an active fiscal and passive monetary policy regime, inflation moves in an opposite direction from the inflation target and a stronger reaction of monetary policy to inflation increases ...
Globalization Institute Working Papers , Paper 124

Working Paper
Inflation dynamics during the financial crisis
Zakrajšek, Egon; Schoenle, Raphael; Gilchrist, Simon; Sim, Jae W. (2015-11-01)
Firms with limited internal liquidity significantly increased prices in 2008, while their liquidity unconstrained counterparts slashed prices. Differences in the firms' price-setting behavior were concentrated in sectors likely characterized by customer markets. The authors develop a model in which firms face financial frictions while setting prices in a customer-markets setting. Financial distortions create an incentive for firms to raise prices in response to adverse demand or financial shocks. These results reflect the firms' reaction to preserve internal liquidity and avoid accessing ...
FRB Atlanta CQER Working Paper , Paper 2015-4

Journal Article
Allan Meltzer and the Search for a Nominal Anchor
Bullard, James B. (2018)
The author examines Allan Meltzer?s career in terms of the search of a nominal anchor for the U.S. Inflation targeting has provided a nominal anchor, in line with Meltzer?s view of inflation as a monetary phenomenon.
Review , Volume 100 , Issue 2 , Pages 117-26

Working Paper
Variation in the Phillips Curve Relation across Three Phases of the Business Cycle
Verbrugge, Randal; Ashley, Richard (2019-05-03)
We use recently developed econometric tools to demonstrate that the Phillips curve unemployment rate?inflation rate relationship varies in an economically meaningful way across three phases of the business cycle. The first (?bust phase?) relationship is the one highlighted by Stock and Watson (2010): A sharp reduction in inflation occurs as the unemployment rate is rising rapidly. The second (?recovery phase?) relationship occurs as the unemployment rate subsequently begins to fall; during this phase, inflation is unrelated to any conventional unemployment gap. The final (?overheating phase?) ...
Working Papers , Paper 201909

Working Paper
Nonlinearities in the Phillips Curve for the United States : Evidence Using Metropolitan Data
Detmeister, Alan K.; Babb, Nathan R. (2017-06-28)
With the unemployment rate in the United States currently below estimates of its natural rate we examine if the relationship between inflation and unemployment is nonlinear. Using aggregate data we are unable to reject a linear relationship. However, using metropolitan-level data we find the slope of the Phillips curve is roughly twice as large when unemployment is low compared to when it is high. Nevertheless the simple nonlinear Phillips curves used here suggest a core CPI inflation rate that is only slightly different than the linear version over the next couple of years.
Finance and Economics Discussion Series , Paper 2017-070

Working Paper
The Roles of Price Points and Menu Costs in Price Rigidity
Knotek, Edward S. (2019-11-12)
Macroeconomic models often generate nominal price rigidity via menu costs. This paper provides empirical evidence that treating menu costs as a structural explanation for sticky prices may be spurious. Using scanner data, I note two empirical facts: (1) price points, embodied in nine-ending prices, account for approximately two-thirds of prices; and (2) at the conclusion of sales, post-sale prices return to their pre-sale levels more than three-fourths of the time. I construct a model that nests roles for menu costs and price points and estimate model variants. Excluding the two facts yields ...
Working Papers , Paper 201923

Working Paper
Is It Time to Reassess the Focal Role of Core PCE Inflation?
Verbrugge, Randal (2021-05-18)
In this paper, I review the history of “core” PCE inflation and its rationale: remove volatile items with transitory shocks to better highlight the trend in inflation. Structural changes in the inflation process imply that, on a “reducing volatility” basis, the list of items excluded from the “core” inflation basket (aside from gasoline) is far from optimal. This is true whether one assesses volatility on the basis of a weighted component monthly, or an index monthly, or a 12-month index, or a 5-year index. In addition, I demonstrate other deficiencies of exclusion indexes. ...
Working Papers , Paper 202110

Working Paper
Self-confirming Price Dispersion in Monetary Economies
Rabinovich, Stanislav; Baughman, Garth (2018-07-10)
In a monetary economy, we show that price dispersion arises as an equilibrium outcome without the need for costly simultaneous search or any heterogeneity in preferences, production costs, or search technologies. A distribution of money holdings among buyers makes sellers indifferent across a set of posted prices, leading to a non-degenerate price distribution. This price distribution, in turn, makes buyers indifferent across a range of money balances, rationalizing the non-degenerate distribution of money holdings. We completely characterize the distribution of posted prices and money ...
Finance and Economics Discussion Series , Paper 2018-046

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