Measuring Inflation Expectations Uncertainty Using High-Frequency Data
Y Song, JCC Chan
Journal of Money, Credit and Banking | Wiley | Published : 2018
Inflation expectations play a key role in determining future economic outcomes. The associated uncertainty provides a direct gauge of how well‐anchored the inflation expectations are. We construct a model‐based measure of inflation expectations uncertainty by augmenting a standard unobserved components model of inflation with information from noisy and possibly biased measures of inflation expectations obtained from financial markets. This new model‐based measure of inflation expectations uncertainty is more accurately estimated and can provide valuable information for policymakers. Using U.S. data, we find significant changes in inflation expectations uncertainty during the Great Recession.
Awarded by Australian Research Council via a Discovery Project
Joshua Chan would like to acknowledge financial support by the Australian Research Council via a Discovery Project (DP170101283).