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Working Paper
Assessing Abenomics: Evidence from Inflation-Indexed Japanese Government Bonds
Christensen, Jens H. E.; Spiegel, Mark M. (2019-10-15)
We assess the impact of news concerning the reforms associated with ?Abenomics? using an arbitrage-free term structure model of nominal and real yields. Our model explicitly accounts for the deflation protection enhancement embedded in Japanese inflation-indexed bonds issued since 2013, which pay their original nominal principal when deflation has occurred from issue to maturity. The value of this enhancement is sizable and time-varying, with substantive impacts on estimates of expected inflation compensation. After properly accounting for deflation protection, our results suggest that ...
Working Paper Series , Paper 2019-15

Discussion Paper
What to Make of Market Measures of Inflation Expectations?
Schaumburg, Ernst; Lucca, David O. (2011-08-15)
Central banks and investors around the world closely monitor developments in financial markets to gauge expectations of future interest rates and inflation. In this post, we argue that two of the most commonly used market-based inflation expectations measures—TIPS breakevens and inflation swaps—are noisy. Although movements in both measures provide policymakers with valuable information, readings should always be interpreted with care.
Liberty Street Economics , Paper 20110815

Working Paper
Anchored Inflation Expectations and the Slope of the Phillips Curve
Jorgensen, Peter; Lansing, Kevin J. (2019-11-06)
We estimate a New Keynesian Phillips curve that allows for changes in the degree of anchoring of agents' subjective inflation forecasts. The estimated slope coefficient in U.S. data is stable over the period 1960 to 2019. Out-of-sample forecasts with the model resolve both the "missing disinflation puzzle" during the Great Recession and the "missing inflation puzzle" during the subsequent recovery. Using a simple New Keynesian model, we show that if agents solve a signal extraction problem to disentangle transitory versus permanent shocks to inflation, then an increase in the policy rule ...
Working Paper Series , Paper 2019-27

Journal Article
Inflation Expectations, the Phillips Curve, and Stock Prices
Lansing, Kevin J.; Nucera, Federico C. (2023-09-25)
During the 1970s and early 1980s, rises in inflation tended to coincide with weaker economic activity and lower stock prices. But in more recent decades, rises in inflation have tended to coincide with stronger economic activity and higher stock prices. The emergence of a pattern where inflation, economic activity, and stock prices all move together over the business cycle can be traced to the beneficial effects of well-anchored inflation expectations.
FRBSF Economic Letter , Volume 2023 , Issue 24 , Pages 6

Working Paper
Household Inflation Expectations and Consumer Spending: Evidence from Panel Data
Burke, Mary A.; Ozdagli, Ali K. (2020-01-01)
Recent research offers mixed results concerning the relationship between inflation expectations and consumption, using qualitative measures of readiness to spend. We revisit this question using survey panel data from the United States of actual spending from 2009 through 2012 that also allow us to control for household heterogeneity. We find that durables spending increases with inflation expectations only for certain types of households, while nondurables spending does not respond to inflation expectations. Moreover, spending decreases with an expected increase in unemployment. These results ...
Working Papers , Paper 20-15

FOMC Actions and Recent Movements in Five-Year Inflation Expectations
Owyang, Michael T.; Bennett, Julie (2022-07-07)
Though the five-year breakeven inflation rate is still higher than the Fed’s 2% target, recent FOMC actions appear to be moderating inflation expectations.
On the Economy

Working Paper
Average Inflation Targeting and Household Expectations
Coibion, Olivier; Knotek, Edward S.; Gorodnichenko, Yuriy (2021-12-20)
Using a daily survey of U.S. households, we study how the Federal Reserve’s announcement of its new strategy of average inflation targeting affected households’ expectations. Starting with the day of the announcement, there is a very small uptick in the minority of households reporting that they had heard news about monetary policy relative to prior to the announcement, but this effect fades within a few days. Those hearing news about the announcement do not seem to have understood the announcement: they are no more likely to correctly identify the Fed’s new strategy than others, nor ...
Working Papers , Paper 20-26R

Discussion Paper
Creating a History of U.S. Inflation Expectations
Middeldorp, Menno; Groen, Jan J. J. (2013-08-21)
Central bankers closely monitor inflation expectations because they?re an important determinant of actual inflation. Treasury inflation-protected securities (TIPS) are commonly used to measure bond market inflation expectations. Unfortunately, they were only introduced in 1997, so historical data are limited. We propose a solution to this problem by using the relationship between TIPS yields and other data with a longer history to construct synthetic TIPS rates going back to 1971.
Liberty Street Economics , Paper 20130821

Working Paper
Macroeconomic Drivers and the Pricing of Uncertainty, Inflation, and Bonds
Bok, Brandyn; Mertens, Thomas M.; Williams, John C. (2022-04-13)
This paper analyzes a new stylized fact: The correlation between uncertainty shocks and changes in inflation expectations has declined and turned negative over the past quarter century. It rationalizes this fact within a standard New Keynesian model with a lower bound on interest rates combined with a decline in the natural rate of interest. With a lower natural rate, the likelihood of the lower bound binding increased and the effects of uncertainty on the economy became more pronounced. In such an environment, increases in uncertainty raise the possibility that the central bank will be ...
Working Paper Series , Paper 2022-06

Working Paper
Assessing Central Bank Commitment to Inflation Targeting: Evidence from Financial Market Expectations in India
Garga, Vaishali; Lakdawala, Aeimit K.; Sengupta, Rajeswari (2022-10-01)
We propose a novel framework to gauge the credibility of central banks’ commitment to an inflation-targeting regime. Our framework combines survey data on macroeconomic forecasts with high-frequency financial market data to understand how inflation targeting makes economic agents change their perception about central bank decisions. Specifically, using the Reserve Bank of India’s adoption of inflation targeting in 2015 as a laboratory, we apply two different approaches to estimate a market-perceived monetary policy rule and analyze how it changed with the implementation of inflation ...
Working Papers , Paper 22-19

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