Regional President Speech

Discussion of “Deflating Inflation Expectations” 2017 U.S. Monetary Policy Forum New York, NY March 3, 2017 Charles L. Evans President and CEO Federal Reserve Bank of Chicago The views I express here are my own and do not necessarily reflect the views of the Federal Reserve Bank of Chicago, my colleagues on the Federal Open Market Committee (FOMC) or within the Federal Reserve System. 111 Cecchetti et al Local Mean in Inflation Core PCE Price Index (quarterly annualized percentage change) 5 4 Actual Core PCE Inflation 3 2 Estimated Local Mean 1 0 1984 1988 1992 1996 2000 2004 2008 2012 2016 Source: Cecchetti et al (2017) and Bureau of Economic Analysis from Haver Analytics 222 FRBC DSGE Model  Enhanced version of Christiano, Eichenbaum and Evans (2005), Smets and Wouters (2007)  Policy rule: ∗ forward guidance for 𝒕𝒕 𝒕𝒕−𝟏𝟏 𝒕𝒕 𝒕𝒕 𝒕𝒕 𝑹𝑹 = 𝑹𝑹 + 𝝆𝝆 × 𝑹𝑹 + 𝜶𝜶 × 𝒚𝒚𝒚𝒚𝒚𝒚𝒑𝒑 + 𝜷𝜷 × 𝝅𝝅𝒚𝒚𝒚𝒚𝒑𝒑 + 𝝐𝝐 attractor at + earlier 𝒕𝒕  Model estimated using data on real activity, wages, prices, fed + 𝒕𝒕 funds, interest rate futures, SPF long run inflation expectations  Attractor is an unobserved component – SPF inflation expectations have largest influence on its estimate 333 DSGE Views of Persistent Inflation: 1993-2008 Core PCE Price Index (quarterly annualized percentage change) 4 3 Actual Core PCE Inflation 2 Contribution of Attractor 1 0 1993 1996 1999 2002 2005 2008 Source: FRBCHI Staff and Bureau of Economic Analysis from Haver Analytics. Attractor from Kalman smoother, 444 1993-2008 Figure 1.1: Color Coded 7 6 5 4 3 2 1 0 0 1 2 3 4 5 6 7 555 noitalfnI IPC eroC dezilaeR 1986-1998 1999-2007 2008-2016 Expected Core CPI Inflation Source: Cecchetti et al (2017) DSGE Views of Persistent Inflation: 2009-2016 Core PCE Price Index (quarterly annualized percentage change) 3 Actual Core PCE Inflation 2 Contribution of Attractor 1 0 2009 2010 2011 2012 2013 2014 2015 2016 Source: FRBCHI Staff and Bureau of Economic Analysis from Haver Analytics. Attractor from Kalman smoother, 666 2009 - 2016

Charles L. Evans (2017, March 2). Regional President Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/regional_speeche_20170303_charles_l_evans

@misc{wtfs_regional_speeche_20170303_charles_l_evans,
  author = {Charles L. Evans},
  title = {Regional President Speech},
  year = {2017},
  month = {Mar},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/regional_speeche_20170303_charles_l_evans},
  note = {Retrieved via When the Fed Speaks corpus}
}