Czech National Bank; Charles University in Prague - CERGE-EI, a joint workplace of Charles University and the Economics Institute of the Czech Academy of Sciences
This paper summarises the findings of the Eurosystem’s Expert Group on Inflation Expectations (EGIE), which was one of the 13 work streams conducting analysis that fed into the ECB’s monetary policy strategy review. The EGIE was tasked with (i) reviewing the nature and behaviour of inflation expectations, with a focus on the degree of anchoring, and (ii) exploring the role that measures of expectations can play in forecasting inflation. While it is households’ and firms’ inflation expectations that ultimately matter in the expectations channel, data limitations have meant that in practice the focus of analysis has been on surveys of professional forecasters and on market-based indicators. Regarding the anchoring of inflation expectations, this paper considers a number of metrics: the level of inflation expectations, the responsiveness of longer-term inflation expectations to shorter-term developments, and the degree of uncertainty. Different metrics can provide conflicting signals about the scale and timing of potential unanchoring, which underscores the importance of considering all of them. Overall, however, these metrics suggest that in the period since the global financial and European debt crises, longer-term inflation expectations in the euro area have become less well anchored. Regarding the role measures of inflation expectations can play in forecasting inflation, this paper finds that they are indicative for future inflationary developments. When it comes to their predictive power, both market-based and survey-based measures are found to be more accurate than statistical benchmarks, but do not systematically outperform each other. Beyond their role as standalone forecasts, inflation expectations bring forecast gains when included in forecasting models and can also inform scenario and risk analysis in projection exercises performed using structural models. ...
Baumann, Ursel and Darracq Paries, Matthieu and Westermann, Thomas and Riggi, Marianna and Bobeica, Elena and Meyler, Aidan and Böninghausen, Benjamin and Fritzer, Friedrich and Trezzi, Riccardo and Jonckheere, Jana and Kulikov, Dmitry and Popova, Dilyana and Pert, Sulev and Paloviita, Maritta and Brázdik, František and Pönkä, Harri and Bess, Mikkel and Robert, Pierre-Antoine and Al-Haschimi, Alexander and Gmehling, Philipp and Banbura, Marta and Charalampakis, Evangelos and Menz, Jan-Oliver and Hartwig, Benny and Paredes, Joan and Volz, Ute and Reiche, Lovisa and Bragoudakis, Zacharias and Tirpak, Marcel and Kasimati, Evangelia and Łyziak, Tomasz and Tagliabracci, Alex and Stanisławska, Ewa and Bessonovs, Andrejs and Iskrev, Nikolay I. and Krasnopjorovs, Olegs and Gavura, Miroslav and Reichenbachas, Tomas and Damjanović, Milan and Colavecchio, Roberta and Maletic, Matjaz and Galati, Gabriele and Leiva, Danilo and Kearney, Ide and Stockhammar, Pär, Inflation Expectations and Their Role in Eurosystem Forecasting (September, 2021). ECB Occasional Paper No. 2021/264, Available at SSRN: https://ssrn.com/abstract=3928285 or http://dx.doi.org/10.2139/ssrn.3928285
Charles University in Prague - CERGE-EI, a joint workplace of Charles University and the Economics Institute of the Czech Academy of Sciences ( email )
Comparative Political Economy: Monetary Policy eJournal
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