Measuring inflation expectations uncertainty using high-frequency data

Vol: 
61/2017
Author name: 
Chan JCC
Song Y
Year: 
2017
Month: 
October
Abstract: 

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 US data, we find significant changes in inflation expectations uncertainty during the Great Recession.

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