September 2021

Why Do We Think That Inflation Expectations Matter for Inflation? (And Should We?)

Jeremy B. Rudd

Abstract:

Economists and economic policymakers believe that households' and firms' expectations of future inflation are a key determinant of actual inflation. A review of the relevant theoretical and empirical literature suggests that this belief rests on extremely shaky foundations, and a case is made that adhering to it uncritically could easily lead to serious policy errors.

Accessible materials (.zip)

DOI: https://doi.org/10.17016/FEDS.2021.062

PDF: Full Paper

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Last Update: March 21, 2022