Measuring Inflation Anchoring and Uncertainty: A US and Euro Area Comparison
46 Pages Posted: 30 Nov 2016 Last revised: 3 Dec 2017
Date Written: November 30, 2017
We use several US and euro-area surveys of professional forecasters to estimate a dynamic factor model of inflation featuring time-varying uncertainty. We obtain survey-consistent distributions of future inflation at any horizon, both in the US and the euro area. Equipped with this model, we propose a novel measure of the anchoring of inflation expectations that accounts for inflation uncertainty. Our results suggest that following the Great Recession, inflation anchoring improved in the US, while mild de-anchoring occurred in the euro-area. As of our sample end, both areas appear to be equally anchored.
Keywords: inflation, surveys of professional forecasters, dynamic factor model with stochastic volatility, term structure of inflation expectations and inflation uncertainty, anchoring of inflation expectations
JEL Classification: C32, E31, E44
Suggested Citation: Suggested Citation