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Expectations, structural breaks and the recent surge in inflation

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  • Gründler, Daniel

Abstract

I use a switching-point VAR to detect if the transmission of inflation expectations to CPI inflation has changed in the post-Covid period. I find evidence that, although inflation expectation shocks affected CPI inflation somewhat stronger after 2020, the differences to the previous regime are too small to be a driving force behind the recent incline in inflation.

Suggested Citation

  • Gründler, Daniel, 2023. "Expectations, structural breaks and the recent surge in inflation," Economics Letters, Elsevier, vol. 233(C).
    • Handle: RePEc:eee:ecolet:v:233:y:2023:i:c:s0165176523004202
    DOI: 10.1016/j.econlet.2023.111394
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    References listed on IDEAS

    as
    1. Bauwens, Luc & Rombouts, Jeroen V.K., 2012. "On marginal likelihood computation in change-point models," Computational Statistics & Data Analysis, Elsevier, vol. 56(11), pages 3415-3429.
    2. Martin Geiger & Johann Scharler, 2021. "How Do People Interpret Macroeconomic Shocks? Evidence from U.S. Survey Data," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 53(4), pages 813-843, June.
    3. Jeffrey C. Fuhrer & Giovanni P. Olivei & Geoffrey M. B. Tootell, 2012. "Inflation Dynamics When Inflation Is Near Zero," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44, pages 83-122, February.
    4. Sylvain Leduc & Keith Sill, 2013. "Expectations and Economic Fluctuations: An Analysis Using Survey Data," The Review of Economics and Statistics, MIT Press, vol. 95(4), pages 1352-1367, October.
    5. Benjamin Wong, 2015. "Do Inflation Expectations Propagate the Inflationary Impact of Real Oil Price Shocks?: Evidence from the Michigan Survey," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 47(8), pages 1673-1689, December.
    6. Richhild Moessner, 2021. "Effects of Inflation Expectations on Inflation," CESifo Working Paper Series 9467, CESifo.
    7. Chib, Siddhartha, 1998. "Estimation and comparison of multiple change-point models," Journal of Econometrics, Elsevier, vol. 86(2), pages 221-241, June.
    8. Philip Liu & Konstantinos Theodoridis & Haroon Mumtaz & Francesco Zanetti, 2019. "Changing Macroeconomic Dynamics at the Zero Lower Bound," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 37(3), pages 391-404, July.
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    More about this item

    Keywords

    Inflation; Inflation expectations; Regime switch; Counterfactual; Switching-point VAR;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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