Search Results
Showing results 1 to 10 of approximately 16.
(refine search)
Working Paper
Understanding Persistent Stagnation
We theoretically explore long-run stagnation at the zero lower bound in a representative agent framework. We analytically compare expectations-driven stagnation to a secular stagnation episode and find contrasting policy implications for changes in government spending, supply shocks and neo-Fisherian policies. On the other hand, a minimum wage policy is expansionary and robust to the source of stagnation. Using Bayesian methods, we estimate a DSGE model that can accommodate two competing hypotheses of long-run stagnation in Japan. We document that equilibrium selection under indeterminacy ...
Working Paper
Greater Than the Sum of the Parts: Aggregate vs. Aggregated Inflation Expectations
Using novel survey evidence on consumer inflation expectations disaggregated by personal consumption expenditure (PCE) categories, we document the paradox that consumers' aggregate inflation expectations usually exceed any individual category expectation. We explore procedures for aggregating category inflation expectations, and find that the inconsistency between aggregate and aggregated inflation expectations rises with subjective uncertainty and is systematically related to socioeconomic characteristics. Overall, our results are inconsistent with the notion that consumers' aggregate ...
Working Paper
Inflation Expectations and Monetary Policy Design: Evidence from the Laboratory
Using laboratory experiments within a New Keynesian framework, we explore the interaction between the formation of inflation expectations and monetary policy design. The central question in this paper is how to design monetary policy when expectations formation is not perfectly rational. Instrumental rules that use actual rather than forecasted inflation produce lower inflation variability and reduce expectational cycles. A forward-looking Taylor rule where a reaction coefficient equals 4 produces lower inflation variability than rules with reaction coefficients of 1.5 and 1.35. Inflation ...
Discussion Paper
What Is Driving the Recent Rise in Consumer Inflation Expectations?
The Thomson Reuters/University of Michigan Survey of Consumers (the “Michigan Survey” hereafter) is the main source of information regarding consumers’ expectations of future inflation in the United States. The most recent release of the Michigan Survey on March 25 drew considerable attention because it showed a large spike in year-ahead expectations for inflation: as shown in the chart below, the median rose from 3.4 to 4.6 percent and the other quartiles of responses showed similar increases. What may have caused this rise in inflation expectations and what lessons should be taken ...
Journal Article
Oil Prices and Inflation Expectations: Is There a Link?
Oil prices and inflation expectations sometimes move in tandem. A close look at three types of shocks to oil prices suggests that not all shocks relate to inflation expectations in the same manner.
Working Paper
Macroeconomic Implications of Oil Price Fluctuations : A Regime-Switching Framework for the Euro Area
We investigate whether the response of the macro-economy to oil price shocks undergoes episodic changes. Employing a regime-switching vector autoregressive model we identify two regimes that are characterized by qualitatively different patterns in economic activity and inflation following oil price shocks in the euro area. In the 'normal regime', oil price shocks trigger only limited and short-lived adjustments in these variables. In the 'adverse regime', by contrast, oil price shocks are followed by sizeable and sustained macroeconomic fluctuations, with inflation and economic activity ...
Working Paper
The Swaps Strike Back: Evaluating Expectations of One-Year Inflation
This study examines the forecasting performance of inflation swaps and survey-based expectations for one-year inflation. Conducting this exercise helps determine if one set of expectations can provide a cleaner signal about future inflation. The study finds that, overall, inflation swaps more frequently provide better forecasts of future inflation. Previous studies that found poor performance of swaps were strongly influenced by liquidity issues during the financial crisis and the pandemic. When these periods are excluded, swaps have superior predictive ability. Our analysis suggests that ...
Working Paper
The Swaps Strike Back: Evaluating Expectations of One-Year Inflation
This study examines the forecasting performance of inflation swaps and survey-based expectations for one-year inflation. Conducting this exercise helps determine if one set of expectations can provide a cleaner signal about future inflation. The study finds that, overall, inflation swaps more frequently provide better forecasts of future inflation. Previous studies that found poor performance of swaps were strongly influenced by liquidity issues during the financial crisis and the pandemic. When these periods are excluded, swaps have superior predictive ability. Our analysis suggests that ...
Working Paper
Effects of Monetary Policy on Household Expectations: The Role of Homeownership
We study the role of homeownership in the effectiveness of monetary policy on households' expectations. Empirically, we find that homeowners revise down their near-term inflation expectations and their optimism about future labor market conditions in response to a rise in mortgage rates, while renters are less likely to do so. We further show that the monetary-policy component of mortgage-rate changes creates the difference in expectation revisions between homeowners and renters. This result suggests that homeowners are attentive to news on interest rates and adjust their expectations ...
Working Paper
Are Real Assets Owners Less Averse to Inflation? Evidence from Consumer Sentiments and Inflation Expectations
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' ...