Term Structures of Inflation Expectations and Real Interest Rates

S. Borağan Aruoba

University of Maryland and Federal Reserve Bank of Philadelphia Research Department Visiting Scholar

Revised September 2016

WP 16-09/R - In this paper, the author uses a statistical model to combine various surveys to produce a term structure of inflation expectations — inflation expectations at any horizon — and an associated term structure of real interest rates.

A previous version of this working paper was originally published in March 2016.

Inflation expectations extracted from this model track realized inflation quite well, and in terms of forecast accuracy, they are at par with or superior to some popular alternatives. Looking at the period 2008-2015, the author concludes that long-run inflation expectations remained anchored, and the policies of the Federal Reserve provided a large level of monetary stimulus to the economy.

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