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Working Paper
Understanding Persistent Stagnation
Cuba-Borda, Pablo A.; Singh, Sanjay R. (2019-03-07)
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 ...
International Finance Discussion Papers , Paper 1243

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

Working Paper
Greater Than the Sum of the Parts: Aggregate vs. Aggregated Inflation Expectations
Dietrich, Alexander; Knotek, Edward S.; Myrseth, Kristian Ove R.; Rich, Robert W.; Schoenle, Raphael; Weber, Michael (2022-06-22)
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 Papers , Paper 22-20

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
Inflation Expectations and Monetary Policy Design: Evidence from the Laboratory
Žakelj, Blaž; Pfajfar, Damjan (2015-06-11)
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 ...
Finance and Economics Discussion Series , Paper 2015-45

Discussion Paper
What Is Driving the Recent Rise in Consumer Inflation Expectations?
Armantier, Olivier; Zafar, Basit; Topa, Giorgio; Van der Klaauw, Wilbert (2011-04-18)
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 ...
Liberty Street Economics , Paper 20110418

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