area that would benefit from further research. how much do people rely on the immediate past in forming expectations about the future? to what extent are projections from the past modified by what they know about the goals of the central bank or the stage and characteristics of the current economic cycle? how often do expectations get updated, and what types of information are used in the process? * * * this is a daunting research agenda, but it should be given a high priority. i appreciate the opportunity to spell it out before an audience that has the skills and the opportunity to address some of these pressing questions. kenneth s. rogoff ( 2003 ), " globalization and global disinflation, " in monetary policy and uncertainty : adapting to a changing economy, proceedings of a symposium sponsored by the federal reserve bank of kansas city, august 28 - 30 ( kansas city : federal reserve bank of kansas city ), pp. 77 - 112 ; alan greenspan ( 2005 ), " globalization, " speech presented to the council on foreign relations, march 10.

only a ( self - reinforcing ) higher rate of inflation. in 1970, the federal reserve held a conference that addressed this then - new framework ; the conference encompassed both theoretical extensions, including lucas'first exposition of rational expectations, and empirical implementation. 3 in its essentials, the way we forecast inflation today is not all that different from what came out of that conference. that is, inflation is importantly a function of an output or employment gap relative to a natural rate, plus some measure of inflation expectations. advances within the basic framework one of the first challenges that the new framework had to face was the supply shocks of the early 1970s. the framework was extended to allow for the effects of shifts in relative prices, such as crude oil and import prices. such shifts can feed through fairly directly to the measures of core inflation through their effect on business costs, though their influence on inflation should be temporary unless they get built into labor costs or inflation expectations. we include these types of price terms today in our forecasting equations, and they are important to forming our views of the inflation outlook and thus to the policy process. another early development within the framework was the buttressing of its microeconomic foundations, in particular by paying more careful attention to the modeling of nominal rigidities. john taylor's staggered - contracts framework remains a touchstone because of its intuitive appeal - annual wage reviews are a familiar experience for most people who work. much subsequent work - including, recently, among economists at the european central bank and the euro - area national central banks has confirmed the key assumption underlying this model, which is that wages and prices are changed infrequently. a key objective of taylor's staggered - contracts model was to show that, in an economy with nominal rigidities, monetary policy can have important effects even when expectations are perfectly rational. however, about a decade ago, jeff fuhrer and george moore pointed out that inflation was more persistent than was predicted by the model with sticky prices and rational expectations. 4 since their work, a number of researchers have suggested that " sticky information " or rules of thumb can account for this excess persistence. such departures of expectations from perfect rationality can be an important source of observed inflation dynamics. at the fed, the staff takes a number of different approaches to the modeling of expectations. the staff's large, formal model ( frb / us ) assumes rational expectations - but with a twist. in particular, the model addresses the fuhrer -