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Long-Run Inflation Expectations

Author

Listed:
  • Jonas D. M. Fisher, Jonas D.

    (FRB Chicag)

  • Melosi, Leonardo

    (University of Warwick, European University Institute, De Nederlandsche Bank, and CEPR)

  • Sebastian Rast, Sebastian

    (De Nederlandsche Bank)

Abstract

Professional forecasters’ long-run inflation expectations overreact to news and exhibit persistent, predictable biases in forecast errors. A model incorporating overconfidence in private information and a persistent expectations bias—which generates persistent forecast errors across most forecasters—accounts for these two features of the data, offering a valuable tool for studying long-run inflation expectations. Our analysis highlights substantial, timevarying heterogeneity in forecasters’ responses to public information, with sensitivity declining across all forecasters when monetary policy is constrained by the effective lower bound. The model provides a framework to evaluate whether policymakers’ communicated inflation paths are consistent with anchored long-run expectations.

Suggested Citation

  • Jonas D. M. Fisher, Jonas D. & Melosi, Leonardo & Sebastian Rast, Sebastian, 2025. "Long-Run Inflation Expectations," The Warwick Economics Research Paper Series (TWERPS) 1551, University of Warwick, Department of Economics.
    • Handle: RePEc:wrk:warwec:1551
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    File URL: https://warwick.ac.uk/fac/soc/economics/research/workingpapers/2025/twerp_1551-_melosi.pdf
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    More about this item

    Keywords

    Panel survey data ; long-run inflation expectations ; rationality ; expectation bias ; overconfidence ; overreaction ; central bank communications ; anchoring JEL Codes: E31 ; D83 ; E52 ; E37;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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