Graduation Year

2026

Date of Submission

2026

Document Type

Campus Only Senior Thesis

Degree Name

Bachelor of Arts

Reader 1

Florian Madison

Abstract

This paper investigates whether U.S. inflation is susceptible to self-fulfilling dynamics by examining the bidirectional relationship between inflation and inflation uncertainty. Using monthly CPI data from 1947 to 2025, along with consumer expectations data from the University of Michigan, inflation uncertainty is estimated and tested via GARCH models, GARCH-in-Mean models, and a time-varying Granger causality framework. The results strongly support the Friedman-Ball hypothesis that higher inflation generates greater uncertainty across both realized and expected inflation, but offer only limited support for the Cukierman-Meltzer hypothesis, as inflation uncertainty does not significantly influence household expectations. The Federal Reserve's 2012 adoption of a 2% inflation target reduced uncertainty surrounding consumer expectations but had no significant effect on realized inflation. Overall, U.S. inflation appears asymmetric rather than fully self-fulfilling: inflation reliably produces uncertainty, but the reverse channel is too weak to complete the feedback loop.

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This thesis is restricted to the Claremont Colleges current faculty, students, and staff.

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