The anchoring of inflation expectations in time and frequency domains

This paper introduces wavelet analysis as a tool for investigating the anchoring of inflation expectations in the United States. We show that the anchoring of inflation expectations varies for different groups of economic agents and changes across time and frequency. For consumers, we confirm significant lead-lag relationships between short- and long-term inflation expectations at medium frequencies of one to four years of scale, thus suggesting that short-term inflation expectations had fed into long-term inflation expectations over the crisis period. However, no such relationship is found for professional forecasters. These results indicate that long-term inflation expectations were de-anchored during the crisis period for consumers but not for professional forecasters. Although consumers’ long-term inflation expectations have been re-anchored since 2014 at medium frequencies, we find signs of de-anchoring at higher time scales of approximately eight years.