Long-term inflation expectations and the transmission of monetary policy shocks: Evidence from a SVAR analysis

Abstract

This paper investigates the role of long-term inflation expectations for the monetary transmission mechanism and the conduct of monetary policy in a structural VAR framework. In contrast to earlier studies, we find that U.S. long-term inflation expectations respond significantly to a monetary policy shock. In line with a re-anchoring channel of monetary policy, long-term inflation expectations play an important role for the transmission of monetary policy shocks to the rate of inflation. Structural scenario analysis suggests that the response of monetary policy to expectations shocks contributes to the stabilization of inflation and unemployment.