A new model of inflation, trend inflation, and long-run inflation expectations

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Chan, Joshua and Clark, Todd and Koop, Gary (2018) A new model of inflation, trend inflation, and long-run inflation expectations. Journal of Money, Credit and Banking. ISSN 0022-2879 (https://doi.org/10.1111/jmcb.12452)

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Abstract

A knowledge of the level of trend inflation is key to many current policy decisions and several methods of estimating trend inflation exist. This paper adds to the growing literature which uses survey-based long-run forecasts of inflation to estimate trend inflation. We develop a bivariate model of inflation and long-run forecasts of inflation which allows for the estimation of the link between trend inflation and the long-run forecast. Thus, our model allows for the possibilities that long-run forecasts taken from surveys can be equated with trend inflation, that the two are completely unrelated, or anything in between. By including stochastic volatility and time-variation in coefficients, it extends existing methods in empirically important ways. We use our model with a variety of inflation measures and survey-based forecasts for several countries. We find that long-run forecasts can provide substantial help in refining estimates and fitting and forecasting inflation. The same evidence indicates it is less helpful to simply equate trend inflation with the long-run forecasts.

ORCID iDs

Chan, Joshua, Clark, Todd and Koop, Gary ORCID logoORCID: https://orcid.org/0000-0002-6091-378X;
  • Item type:Article
    ID code:61592
    Dates:
    Date
    Event
    28 February 2018
    Published
    22 January 2018
    Published Online
    1 August 2017
    Accepted
    Notes:This is the peer reviewed version of the following article: Chan, J, Clark, T & Koop, G 2017, 'A new model of inflation, trend inflation, and long-run inflation expectations' Journal of Money, Credit and Banking., which has been published in final form at http://onlinelibrary.wiley.com/journal/10.1111/(ISSN)1538-4616. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving.
    Subjects:Social Sciences > Economic Theory
    Department:Strathclyde Business School > Economics
    Depositing user: Pure Administrator
    Date deposited:17 Aug 2017 11:11
    Last modified:11 Nov 2024 11:46
    Related URLs:
    URI:https://strathprints.strath.ac.uk/id/eprint/61592
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