Measuring Inflation Anchoring and Uncertainty: A US and Euro Area Comparison

46 Pages Posted: 30 Nov 2016 Last revised: 3 Dec 2017

See all articles by Olesya V. Grishchenko

Olesya V. Grishchenko

Board of Governors of the Federal Reserve System

Sarah Mouabbi

Banque de France

Jean-Paul Renne

University of Lausanne - School of Economics and Business Administration (HEC-Lausanne)

Multiple version iconThere are 2 versions of this paper

Date Written: November 30, 2017

Abstract

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

Grishchenko, Olesya V. and Mouabbi, Sarah and Renne, Jean-Paul, Measuring Inflation Anchoring and Uncertainty: A US and Euro Area Comparison (November 30, 2017). Available at SSRN: https://ssrn.com/abstract=2877174 or http://dx.doi.org/10.2139/ssrn.2877174

Olesya V. Grishchenko (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States
202-452-2981 (Phone)

Sarah Mouabbi

Banque de France ( email )

Paris
France

Jean-Paul Renne

University of Lausanne - School of Economics and Business Administration (HEC-Lausanne) ( email )

Unil Dorigny, Batiment Internef
Lausanne, 1015
Switzerland

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