TY - JOUR
T1 - Assessing the (de-)anchoring of households’ long-term inflation expectations in the US
AU - Dash, Pradyumna
AU - Rohit, Abhishek Kumar
AU - Devaguptapu, Adviti
N1 - Funding Information:
We would like to thank David VanHoose, editor and two anonymous reviewers for their helpful comments and suggestions. We have benefitted from discussions with Burak Dolar, Makram El-Shagi, Chetan Ghate, Aaron Mehrotra, and participants at the 93rd Annual Conference of the Western Economic Association (WEAI) in Vancouver. We are grateful to David E. Lebow and Ekaterina Peneva of the Federal Reserve System for sharing data of actual inflation perception.
Publisher Copyright:
© 2019 Elsevier Inc.
PY - 2020/3
Y1 - 2020/3
N2 - Well-anchored inflation expectations play an important role in the achievement of price stability. The (de-)anchoring of long-term inflation expectations in the US has been under debate since the sub-prime crisis. This paper assesses and explains the evolution of the degree of (de-)anchorage of households’ long-term inflation expectations in the US during the period of 1990 to 2019, in a time-varying framework. We find the long-term inflation expectations to be de-anchored during the entire study period. The de-anchorage was greater in the first half of the 1990s. Subsequently, it has declined but has not yet anchored. An increase in inflation perception reduces the degree of de-anchorage in a (persistently) low-inflation perception period, whereas it causes a rise in the degree of de-anchorage when inflation perception is around its long-term average or is persistently high. Further, a rise in economic policy uncertainty also increases the de-anchorage of households’ long-term inflation expectations. This suggests that the Federal Reserve System (Fed) may find it beneficial to pay more attention to households’ inflation perception.
AB - Well-anchored inflation expectations play an important role in the achievement of price stability. The (de-)anchoring of long-term inflation expectations in the US has been under debate since the sub-prime crisis. This paper assesses and explains the evolution of the degree of (de-)anchorage of households’ long-term inflation expectations in the US during the period of 1990 to 2019, in a time-varying framework. We find the long-term inflation expectations to be de-anchored during the entire study period. The de-anchorage was greater in the first half of the 1990s. Subsequently, it has declined but has not yet anchored. An increase in inflation perception reduces the degree of de-anchorage in a (persistently) low-inflation perception period, whereas it causes a rise in the degree of de-anchorage when inflation perception is around its long-term average or is persistently high. Further, a rise in economic policy uncertainty also increases the de-anchorage of households’ long-term inflation expectations. This suggests that the Federal Reserve System (Fed) may find it beneficial to pay more attention to households’ inflation perception.
UR - https://www.scopus.com/pages/publications/85076487263
UR - https://www.scopus.com/inward/citedby.url?scp=85076487263&partnerID=8YFLogxK
U2 - 10.1016/j.jmacro.2019.103183
DO - 10.1016/j.jmacro.2019.103183
M3 - Article
AN - SCOPUS:85076487263
SN - 0164-0704
VL - 63
JO - Journal of Macroeconomics
JF - Journal of Macroeconomics
M1 - 103183
ER -