Title: A new time-varying parameter autoregressive model for U.S. inflation expectations
Authors: Markku Lanne - University of Helsinki (Finland) [presenting]
Jani Luoto - University of Helsinki (Finland)
Abstract: The evolution of U.S. inflation is studied by means of a new noncausal autoregressive model with time-varying parameters that outperforms the corresponding constantant-parameter causal and noncausal models in terms of fit and forecast accuracy. We find the coefficients of both lagged and expected inflation in the new Keynesian Phillips curve based on our model constant in time and important although the latter dominates in determining current inflation. The implied trend inflation estimate evolves smoothly and is well aligned with survey expectations, and its variation is found to follow from the underlying marginal cost rather than time-varying steady state inflation.