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Discussion Paper
How Much Do Inflation Expectations Matter for Inflation Dynamics?
Sbordone, Argia M.; Shahanaghi, Sara (2015-09-23)
Inflation dynamics are often described by some form of the Phillips curve. Named after A. W. Phillips, the British economist whose study of U.K. wage and unemployment data laid the groundwork, the Phillips curve denotes an inverse relationship between inflation and some measure of economic slack. A much-discussed issue in the literature is how forward-looking this relationship is. In this post, we address this question using a flexible version of the New Keynesian Phillips curve (NKPC) to illustrate the key role that expectations play in inflation dynamics.
Liberty Street Economics , Paper 20150923

Working Paper
Inflation Expectations with Finite Horizon Planning
Gust, Christopher J.; Herbst, Edward P.; López-Salido, J. David (2024-08-09)
Under finite horizon planning, households and firms evaluate a full set of state-contingent paths along which the economy might evolve out to a finite horizon but have limited ability to process events beyond that horizon. We show--analytically and empirically--that such a model accounts for an initial underreaction and subsequent overreaction of inflation forecasts. A planning horizon of four quarters can account for the evidence on the predictability of inflation forecast errors and macroeconomic data. Our identification and estimation strategies combine full-information methods based ...
Finance and Economics Discussion Series , Paper 2024-063

Working Paper
Macroeconomic Implications of Oil Price Fluctuations : A Regime-Switching Framework for the Euro Area
Hubrich, Kirstin; Holm-Hadulla, Fédéric (2017-06)
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 ...
Finance and Economics Discussion Series , Paper 2017-063

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
Pandemic and War Inflation: Lessons from the International Experience
Lipinska, Anna; Martínez García, Enrique; Schwartzman, Felipe (2025-08-22)
This paper examines the drivers of the 2020-23 inflation surge, with an emphasis on the similarities and differences across countries, as well as the role that monetary policy frameworks might have played in shaping central banks' responses. The inflation surge in the U.S. and abroad was set in motion by two global events: the COVID-19 pandemic and Russia's invasion of Ukraine. Pandemic-related supply disruptions, a rotation of consumer spending toward goods, and commodity price increases exacerbated by Russia's invasion of Ukraine resulted in unusually large relative price increases, which ...
Finance and Economics Discussion Series , Paper 2025-071

Journal Article
Oil Prices and Inflation Expectations: Is There a Link?
McGillicuddy, Joseph; Badel, Alejandro (2015-07)
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.
The Regional Economist , Issue July

Working Paper
Effects of Monetary Policy on Household Expectations: The Role of Homeownership
Ahn, Hie Joo; Yang, Choongryul (2022-10-03)
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 ...
Finance and Economics Discussion Series , Paper 2022-065

Journal Article
Has the Anchoring of Inflation Expectations Changed in the United States during the Past Decade?
Oksol, Amy; Doh, Taeyoung (2018-01)
The financial crisis and Great Recession led to dramatic shifts in U.S. monetary policy over the past decade, with potential implications for inflation expectations. Prior to the crisis, inflation expectations were well anchored. But during the crisis and recovery, the Federal Reserve turned to new policies such as large-scale asset purchases (LSAPs). In addition, the Federal Open Market Committee adopted a formal inflation target in 2012, with the stated goal of keeping longer-term inflation expectations stable. Did inflation expectations remain anchored during this period of unconventional ...
Economic Review , Issue Q I , Pages 31-58

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