Measuring Inflation Expectations Uncertainty Using High-Frequency Data

Inflation expectations play a key role in determining future economic outcomes. The
associated uncertainty provides a direct gauge of how well-anchored the inflation
expectations are. We construct a model-based measure of inflation expectations
uncertainty by augmenting a standard unobserved components model of inflation with
information from noisy and possibly biased measures of inflation expectations obtained
from financial markets. This new model-based measure of inflation expectations
uncertainty is more accurately estimated and can provide valuable information for
policymakers. Using US data, we find significant changes in inflation expectations
uncertainty during the Great Recession.