Expectations and the Core Rate of Inflation
Inflation rates associated with different price series are both volatile and weakly correlated, properties that make realized inflation an unattractive guide for monetary policy. In contrast, the expected inflation series generated by a wide variety of econometric models are less volatile than actual inflation and are highly correlated. This correlation suggests that the different series are tracking a common trend, or core rate, and makes expected inflation a suitable benchmark for monetary policy directed toward controlling inflation.
Title: Expectations and the Core Rate of Inflation
Date: December 1990
Publication: Federal Reserve Bank of Cleveland, Economic Review,
Author(s):Richard H. Jefferis, Jr.
Type: Economic Review
Suggested citation: Jefferis, Richard H., Jr. “Expectations and the Core Rate of Inflation,” Federal Reserve Bank of Cleveland, Economic Review, vol. 26, no. 4, pp. 13-21, 12.01.1990.