Effective Use of Survey Information in Estimating the Evolution of Expected Inflation |
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| Authors: | SHARON KOZICKI P. A. TINSLEY |
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| Affiliation: | Sharon Kozicki is the Chief of the Canadian Economic Analysis Department at the Bank of Canada, Ottawa, ON, Canada (E‐mail: skozicki@bank‐banque‐canada.ca). P.A. Tinsley is a Professor of Economics at Birkbeck, University of London, London, UK (E‐mail: p.tinsley@bbk.ac.uk). |
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| Abstract: | The evolution of the term structure of expected U.S. inflation is modeled using survey data to provide timely information on structural change not contained in lagged inflation data. To capture shifts in subjective perceptions, the model is adaptive to long‐horizon survey expectations. However, even short‐horizon survey expectations inform shifting‐endpoint estimates that capture the lag between inflation and the perceived inflation target, which anchors inflation expectations. Results show movements of the perceived target are an important source of inflation persistence and suggest historical U.S. monetary policy was not fully credible for much of the postwar sample. |
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| Keywords: | E3 E5 E31 E37 E52 Livingston Survey inflation persistence shifting endpoint unobserved components expectations Kalman filter |
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