Inflation Expectations, Inflation Target Credibility and the COVID-19 Pandemic: New Evidence from Germany

Center for Financial Studies Working Paper no. 658, 2021

23 Pages Posted: 15 Nov 2021

See all articles by Winnie Coleman

Winnie Coleman

Freie University of Berlin

Dieter Nautz

Free University of Berlin (FUB) - Department of Economics

Date Written: July 2, 2021

Abstract

Using the exact wording of the ECB’s definition of price-stability, we started a representative online survey of German citizens in January 2019 that is designed to measure long-term inflation expectations and the credibility of the inflation target. Our results indicate that credibility has decreased in our sample period, particularly in the course of the deep recession implied by the COVID-19 pandemic. Interestingly, even though inflation rates in Germany have been clearly below 2% for several years, credibility has declined mainly because Germans increasingly expect that inflation will be much higher than 2% over the medium term. We investigate how inflation expectations and the impact of the pandemic depend on personal characteristics including age, gender, education, income, and political attitude.

Keywords: Credibility of Inflation Targets, Household Inflation Expectations, Expectation Formation, Online Surveys, COVID-19 Pandemic

JEL Classification: E31, E52, E58

Suggested Citation

Coleman, Winnie and Nautz, Dieter, Inflation Expectations, Inflation Target Credibility and the COVID-19 Pandemic: New Evidence from Germany (July 2, 2021). Center for Financial Studies Working Paper no. 658, 2021, Available at SSRN: https://ssrn.com/abstract=3963298 or http://dx.doi.org/10.2139/ssrn.3963298

Winnie Coleman

Freie University of Berlin ( email )

Boltßmann Straße 20
Berlin, 14195
Germany

Dieter Nautz (Contact Author)

Free University of Berlin (FUB) - Department of Economics ( email )

Boltzmannstrasse 20
D-14195 Berlin, 14195
Germany

HOME PAGE: http://www.wiwiss.fu-berlin.de/institute/iso/nautz/mitarbeiter/Nautz.html

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