The Effect of the Eurosystem’s Expanded Asset Purchase Programme on Inflation Expectations: Evidence From the ECB Survey of Professional Forecasters

18 Pages Posted: 31 Jul 2019

Date Written: October 1, 2018

Abstract

This paper investigates the effect of ECB asset purchases on inflation expectations in the euro area, as measured by the ECB Survey of Professional Forecasters. To identify the effects on individual expectations we adopt a panel approach, where the Eurosystem Asset Purchase Programme (APP) shocks are used as covariates to explain the revisions in the individual inflation forecasts; controls for updates in macroeconomic and financial developments are also included. Our results indicate that the first APP announcement in January 2015 resulted in a statistically significant upwards revision of medium term inflation expectations and lowered the forecasters’ assessment of the probability of a low inflation regime. The average effect however masks significant differences among forecasters: forecasters that were relatively more accurate prior to the announcement were also those who revised their inflation forecasts more markedly.

Keywords: monetary policy announcements, event study, inflation expectations, unconventional monetary policy

JEL Classification: E31, E52, E58, E65, G14

Suggested Citation

Bulligan, Guido, The Effect of the Eurosystem’s Expanded Asset Purchase Programme on Inflation Expectations: Evidence From the ECB Survey of Professional Forecasters (October 1, 2018). Bank of Italy Occasional Paper No. 455, Available at SSRN: https://ssrn.com/abstract=3429201 or http://dx.doi.org/10.2139/ssrn.3429201

Guido Bulligan (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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