Lugar: Sala de Reuniones del Departamento de Economía. Edificio Los Madroños, 2ª planta (ECON-2026)

Ponente: José Elias Gallegos (BdE)

Título: Inflation persistence, noisy information and the Phillips curve (available here)
 

Abstract: A vast literature has documented that US inflation persistence has fallen in recent decades, but this finding is difficult to explain in monetary models. Using survey data on inflation expectations, I document a positive co-movement between ex-ante average forecast errors and forecast revisions (suggesting forecast sluggishness) from 1968 to 1984, but no co- movement afterward. I extend the New Keynesian setting to include noisy and dispersed information about the aggregate state and show that inflation is more persistent in peri- ods of greater forecast sluggishness. My results suggest that changes in firm forecasting behavior explain around 90% of the fall in inflation persistence since the mid-1980s. I also find that the changes in the dynamics of the Phillips curve can be explained by the change in information frictions. After controlling for changes in information frictions, I estimate only a modest decline in the slope. I find that a more significant factor in the dynamics of the Phillips curve is the shift towards greater forward-lookingness and less backward-lookingness. Finally, I find evidence of forecast underrevision in the post-COVID period, which explains the increase in the persistence of current inflation.