Euro Area Inflation Expectations

8 Pages Posted: 20 Jun 2018

See all articles by Ricardo Gimeno

Ricardo Gimeno

Banco de España

Eva Ortega

Bank of Spain, Research Department

Date Written: February 28, 2018

Abstract

This study explores the recent dynamics of inflation expectations for the main euro area countries. It uses daily financial data for the main euro area countries over the past 15 years with a wide range of time horizons. The estimation of a model of the term structure of inflation expectations using these data allows the common part to be separated from the country specific part. It is found that, for the various time horizons and countries, the bulk of expected inflation is common to the whole euro area. The weight of country-specific factors is low, being most significant for the shorter term. For time horizons between five and ten years, the estimated inflation expectations showed a downward trend from 2012, which has reversed in the last two years owing to the application of a broad set of unconventional monetary policy measures in the euro area since mid-2014. Still, in the past year, medium-term inflation expectations have held below 2%, around 1.7% on average, clearly lower than in the period before the economic crisis.

Suggested Citation

Gimeno, Ricardo and Ortega, Eva, Euro Area Inflation Expectations (February 28, 2018). Banco de Espana Article 4/18. Available at SSRN: https://ssrn.com/abstract=3198121 or http://dx.doi.org/10.2139/ssrn.3198121

Ricardo Gimeno (Contact Author)

Banco de España ( email )

Madrid 28014
Spain

Eva Ortega

Bank of Spain, Research Department ( email )

Alcala 50
28014 Madrid
Spain

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