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Long-Run Inflation Uncertainty

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  • Stefan Nagel

    (University of Michigan, NBER, and CEPR)

Abstract

In this commentary I argue that option price data offer useful insights into the long-run macroeconomic uncertainty perceived by investors. Data on inflation options in the United States show substantial dispersion in the risk-neutral distribution of long-run inflation rates. This may indicate that substantial uncertainty about the inflation target still exists. However, I argue that a high dispersion in the risk-neutral distribution could also reflect disagreement among investors who are confident in their own forecasts and do not necessarily perceive a high degree of subjective uncertainty. Disagreement could potentially reconcile the relative stability of inflation in recent years with the substantial dispersion in the risk-neutral distribution of long-run inflation and in survey forecasts of long inflation.

Suggested Citation

  • Stefan Nagel, 2016. "Long-Run Inflation Uncertainty," International Journal of Central Banking, International Journal of Central Banking, vol. 12(3), pages 207-217, September.
    • Handle: RePEc:ijc:ijcjou:y:2016:q:3:a:5
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    Cited by:

    1. Nautz, Dieter & Strohsal, Till & Netšunajev, Aleksei, 2019. "The Anchoring Of Inflation Expectations In The Short And In The Long Run," Macroeconomic Dynamics, Cambridge University Press, vol. 23(5), pages 1959-1977, July.
    2. Sirio Aramonte, 2022. "Inflation risk and the labor market: beneath the surface of a flat Phillips curve," BIS Working Papers 1054, Bank for International Settlements.

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