| Abstract: |
Surveys provide direct information on expectations, but only short histories
are available at quarterly frequencies or for long-horizon expectations.
Longer histories typically contain only semi-annual observations of
short-horizon forecasts. The authors fill in the gaps by constructing a
50-year monthly history of expected inflation at all horizons from one month
to 10 years that is consistent with inflation data and infrequent survey data.
In the process, some models that fit inflation well are found to generate
forecasts that bear little resemblance to survey data. Also, survey data on
near-term expectations are found to contain considerable information about
long-horizon views. The estimated long-horizon forecast series, a measure of
the private sector’s perception of the inflation target of monetary policy,
has shifted considerably over time and is the source of some of the
persistence of inflation. When compared with estimates of the effective
inflation goal of policy, these perceptions suggest that monetary policy has
been less than fully credible historically. |