In this paper we estimate the value of the embedded option in U.S. Treasury Inflation Protected Securities (TIPS). The option value exhibits significant time variation that is correlated with periods of deflationary expectations. We use our estimated option values to construct an embedded option...

This paper examines a number of alternative PCE price inflation measures including overall PCE inflation, PCE inflation excluding food and energy, trimmed mean PCE inflation, component-smoothed inflation, variance-weighted inflation, inflation with weights based on disaggregated regressions, and...

Firmly-anchored inflation expectations are widely viewed as playing a central role in the successful conduct of monetary policy. This paper presents estimates of trend inflation, based on information contained in survey expectations, the term structure of interest rates, and realized inflation...

Inflation targeting as practiced by the Bank of England has undergone several changes since its adoption in 1992, including redefinition of the goal, measures to increase transparency and the granting of independence to the central bank. These changes are likely to have affected long-run...

A standard state-dependent pricing model implies very limited scope for using active monetary policy to stabilize real activity. Two modeling strategies which expand the role of monetary policy are time-dependent pricing and strategic complementarities between price-setting firms. These...

Inflation expectations play a central role in models of the Phillips curve. At long time horizons inflation expectations may reflect the credibility of a monetary authority's commitment to price stability. These observations highlight the importance of inflation expectations for monetary policy....

Is the observed correlation between current and lagged inflation a function of backward-looking inflation expectations, or do the lags in inflation regressions merely proxy for rational forward-looking expectations, as in the new-Keynesian Phillips curve? Recent research has attempted to answer...

Meyer (1999) has suggested that episodes of heightened uncertainty about the NAIRU may warrant a nonlinear policy response to changes in the unemployment rate. This paper offers a theoretical justification for such a nonlinear policy rule, and provides some empirical evidence on the relative...

In his 1999 monograph The Conquest of American Inflation Tom Sargent describes how a policymaker, who applies a constant-gain algorithm in estimating the Phillips curve, can fall into the grip of an induction problem: concluding on the basis of reduced-form evidence that the trade-off between...