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THE ANCHORING OF INFLATION EXPECTATIONS IN THE SHORT AND IN THE LONG RUN
Published online by Cambridge University Press: 21 September 2017
Abstract
This paper introduces structural VAR analysis as a tool for investigating the anchoring of inflation expectations. We show that US consumers' inflation expectations are anchored in the long run because macro-news shocks are long-run neutral for long-term inflation expectations. The identification of structural shocks helps to explain why inflation expectations deviate from the central bank's target. Our results indicate that the recent decline in long-term inflation expectations does not result from deanchoring macro-news but can be attributed to downward adjustments in consumers' expectations about the central bank's inflation target.
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- Copyright © Cambridge University Press 2017
Footnotes
Financial support from the Deutsche Forschungsgemeinschaft (DFG) through CRC 649 “Economic Risk” is gratefully acknowledged. We are grateful for comments by Sven Schreiber, Mathias Trabandt, and Lars Winkelmann. The views expressed are those of the author(s) and do not necessarily represent the official views of Eesti Pank or the Eurosystem.
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