Search Results
Journal Article
Has the Anchoring of Inflation Expectations Changed in the United States during the Past Decade?
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 ...
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' ...
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 ...
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
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
Household Inflation Expectations and Consumer Spending: Evidence from Panel Data
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 of actual spending from the U.S. between 2009 and 2012 that also allows us to control for household heterogeneity. We find that durables spending increases with expected inflation only for selected types of households while nondurables spending does not respond to expected inflation. Moreover, spending decreases with expected unemployment. These results imply a limited stimulating ...
Working Paper
Perceptions and Expectations of Inflation by U.S. Households
To better understand inflation expectations, we examine newly available data on U.S. households' inflation perceptions-what people think inflation has been in the past. The overarching summary is that inflation perceptions look similar to inflation expectations. The central tendencies of the responses for perceived inflation over the past five to ten years are similar to those of expected inflation for the next five to ten years, and all are a little above official estimates of inflation. Thus, survey respondents overall do not expect long-term inflation to change in the future relative to ...
Working Paper
Inflation Disagreement Weakens the Power of Monetary Policy
We present empirical evidence that household inflation disagreement weakens the power of forward guidance and conventional monetary policy shocks. The attenuation effect is stronger when inflation forecasts are positively skewed and it is not driven by endogenous responses of inflation disagreement to contemporaneous shocks. These empirical observations can be rationalized by a model featuring heterogeneous beliefs about the central banks' inflation target. An agent who perceives higher future inflation also perceives a lower real interest rate and thus borrows more to finance consumption, ...
Discussion Paper
How Much Do Inflation Expectations Matter for Inflation Dynamics?
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.