A simple measure of anchoring for short-run expected inflation in FIRE models

We show that the fraction of non-reoptimizing firms that index prices to the inflation target, rather than lagged inflation, provides a simple measure of anchoring for short-run expected inflation in a New Keynesian model with full-information rational expectations. Higher values of the anchoring me...

Ausführliche Beschreibung

Gespeichert in:
Bibliographische Detailangaben
Veröffentlicht in:Economics letters 2025-01, Vol.246, p.112050, Article 112050
Hauptverfasser: Jørgensen, Peter Lihn, Lansing, Kevin J.
Format: Artikel
Sprache:eng
Schlagworte:
Online-Zugang:Volltext
Tags: Tag hinzufügen
Keine Tags, Fügen Sie den ersten Tag hinzu!
Beschreibung
Zusammenfassung:We show that the fraction of non-reoptimizing firms that index prices to the inflation target, rather than lagged inflation, provides a simple measure of anchoring for short-run expected inflation in a New Keynesian model with full-information rational expectations. Higher values of the anchoring measure imply less sensitivity of rational inflation forecasts to movements in actual inflation. The approximate value of the model’s anchoring measure can be inferred from observable data generated by the model itself, as given by 1 minus the autocorrelation statistic for quarterly inflation. We show that a shift in the collective indexing behavior of firms allows the model to account for numerous features of evolving U.S. inflation behavior since 1960. •Simple anchoring measure for expected inflation in New Keynesian FIRE model.•Fraction of firms that index prices to inflation target rather than lagged inflation.•Anchoring measure approximated by 1 minus autocorrelation statistic for inflation.•Shift in firms’ indexing behavior can account for U.S. inflation behavior since 1960.
ISSN:0165-1765
DOI:10.1016/j.econlet.2024.112050