The divergence between core and headline inflation: Implications for consumers' inflation expectations

Arora, Vipin; Gomis-Porqueras, Pedro; Shi, ShuPing

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The divergence between core and headline inflation: Implications for consumers' inflation expectations

Date

2013

Authors

Arora, Vipin

Gomis-Porqueras, Pedro

Shi, ShuPing

Publisher

Elsevier

Abstract

We show that US consumer inflation expectations are formed using a variant of adaptive expectations proposed by Mankiw et al. (2004). In particular, expectations behave differently when food and energy prices rise sharply relative to other prices. Using t