Economics, Econometrics and Finance
4 years ago

Inflation trends defy expectations, labor market impact minimal, financial conditions key.

2 views
RePEc: Research Papers in Economics
Deflating Inflation Expectations: The Implications of Inflation's Simple Dynamics
Stephen G. Cecchetti, Michael Feroli, Peter Hooper, Anil Kashyap, Kermit L. Schoenholtz

Paper Summary

The report looks at inflation in the US since 1984. Changes in inflation are best predicted by looking at data from the two most recent quarters. Inflation levels fluctuate around a slowly changing trend called the local mean. Factors like labor market slack have a small impact on inflation, while financial conditions influenced by monetary policy have a larger effect. Overall, one-off changes in labor market slack or inflation expectations are unlikely to predict long-term inflation trends.

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