Commodity Prices and Inflation Expectations in the United States /

U.S. monetary policy can remain extraordinarily accommodative only if longer-term inflation expectations stay well-anchored, including in response to commodity price shocks. We find that oil price shocks have a statistically significant, but economically small impact on longer-term inflation compens...

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Bibliographic Details
Main Author: Celasun, Oya
Other Authors: Mihet, Roxana, Ratnovski, Lev
Format: Journal
Language:English
Published: Washington, D.C. : International Monetary Fund, 2012.
Series:IMF Working Papers; Working Paper ; No. 2012/089
Online Access:Full text available on IMF
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520 3 |a U.S. monetary policy can remain extraordinarily accommodative only if longer-term inflation expectations stay well-anchored, including in response to commodity price shocks. We find that oil price shocks have a statistically significant, but economically small impact on longer-term inflation compensation embedded in U.S. Treasury bonds. The estimated effect is larger for the post-crisis period, and robust to controlling for measures of liquidity risk premia. Oil price shocks are also correlated with the variance of longer-term inflation expectations in the University of Michigan Survey of Consumers in the post-crisis period. These results are not attributable to looser monetary policy - oil price increases were associated with expectations of a faster monetary tightening after the crisis. Overall, the findings are consistent with some impact of commodity prices on long-term inflation expectations and/or on inflation rate risk. 
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700 1 |a Mihet, Roxana. 
700 1 |a Ratnovski, Lev. 
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