We model inflation forecasts as monotonically diverging from an estimated long-run anchor point towards actual inflation as the forecast horizon shortens. Fitting the model with forecaster-level data for Canada and the US, we identify three key differences between the two countries. First, the...

Since the 2001 recession, average core inflation has been below the Federal Reserve's 2% target. This deflationary bias is a predictable consequence of a low nominal interest rates environment. When monetary policy faces the risk of encountering the zero lower bound, in.ation tends to remain...

We propose and estimate a dynamic and individual model of expectations formation that links individual consumers’ inflation expectations to their own lagged forecasts as well as proxies for the rational expectation forecasts. The model builds on the existing rational inattention literature and...

This paper takes up the issue of the flexibility of inflation targeting regimes, with the specific goal of determining whether the monetary policy of the Bank of England, which has a formal inflation target, has been any less flexible than that of the Federal Reserve, which does not have such a...

Anchored inflation expectations are of key importance for monetary policy. If long-terminflation expectations arewell-anchored, they should be unaffected by short-term economic news. This letter introduces newsregressions with multiple endogenous breaks to investigate the de- and re-anchoring of...

We provide a tractable model to study monetary policy under discretion. We restrict our analysis to Markov equilibria. We find that for all parametrizations with an equilibrium inflation rate of about 2 percent, there is a second equilibrium with an inflation rate just above 10 percent. Thus,...

U.S. monetary policy can remain extraordinarily accommodative only if longer-term inflation expectations stay well-anchored, including in response to commodity price shocks. We find that oil price shocks have a statistically significant, but economically small impact on longer-term inflation...

We provide a tractable model to study monetary policy under discretion. We restrict our analysis to Markov equilibria. We find that for all parametrizations with an equilibrium inflation rate of about 2 percent, there is a second equilibrium with an inflation rate just above 10 percent. Thus,...

Why do some attempts at disinflation lead to substantial reductions in inflation while others do not? We investigate this question in the context of the Federal Reserve's attempts at disinflation since World War II. Our central finding is that a fundamental determinant of success in reducing...

Refet Gürkaynak, Brian Sack, and Eric Swanson (2005) provide empirical evidence that long forward nominal rates are overly sensitive to monetary policy shocks, and that this is consistent with a model where long-term inflation expectations are not anchored because agents must infer the central...