Inflation: Updating Approaches Using Lessons from Recent History
Paper Session
Saturday, Jan. 6, 2024 10:15 AM - 12:15 PM (CST)
- Chair: Linda Goldberg, Federal Reserve Bank of New York, NBER, CEPR, CEBRA
Indirect Consumer Inflation Expectations: Theory and Evidence
Abstract
Surveys often measure consumers’ inflation expectations by asking directly about prices in general or overall inflation, concepts that may not be well-defined for some individuals. In this Commentary, we propose a new, indirect way of measuring consumer inflation expectations: Given consumers’ expectations about developments in prices of goods and services during the next 12 months, we ask them how their incomes would have to change to make them equally well-off relative to their current situation such that they could buy the same amount of goods and services as they can today. Using a massive number of survey responses at a high frequency, we show that this measure of indirect consumer inflation expectations has risen sharply since early 2021. Higher inflation experiences correlate with higher indirect consumer inflation expectations across US cities and around the world.The Role of Wages in Trend Inflation: Back to the 1980s?
Abstract
This paper examines whether the measurement of trend inflation can be improved by using wage data in a dynamic factor model of disaggregated prices and wages for the United States. The model features time-varying coefficients and stochastic volatility. An estimate of trend inflation is a time-varying distributed lag of prices and wages, where the weight on a series depends on its time-varying volatility, persistence, and comovement with other series. The results show that wages inform estimates of trend inflation. The weight on wages was highest around 1980, drifted down through the 2000s, and returned to its 1980s value by 2022.Discussant(s)
Martin Almuzara
,
Federal Reserve Bank of New York
Alexander Wolman
,
Federal Reserve Bank of Richmond
Stephanie Schmitt-Grohé
,
Columbia University, CEPR and NBER
JEL Classifications
- E3 - Prices, Business Fluctuations, and Cycles