Definition of Price Stability, Range and Point Inflation Targets: The Anchoring of Long-Term Inflation Expectations

52 Pages Posted: 22 Jan 2004

See all articles by Efrem Castelnuovo

Efrem Castelnuovo

University of Padua - Department of Economics

Sergio Nicoletti Altimari

European Central Bank (ECB)

Diego Rodriguez-Palenzuela

European Central Bank (ECB)

Date Written: September 2003

Abstract

Announcing a quantitative objective for price developments has become a common practice in modern monetary policy making. While the specific features of such announced objectives vary across countries, a common rationale for this is to help anchoring inflation expectations. We use survey data on long-term inflation expectations in 15 industrial countries since the early nineties to investigate how well anchored are inflation expectations. We find that in all countries except Japan long-term inflation expectations are well anchored and, generally, increasingly so over the past decade. When comparing this evidence across types of announcements of the inflation objectives, we find that the specific features of announcements have no visible effect on the performance at anchoring inflation expectations. In particular, there does not seem to be evidence that the announcement of a quantitative objective in the form of a point or of a range for admissible inflation rates makes any appreciable difference.

Keywords: inflation expectations, credibility, nominal anchor, definition of price stability, inflation target

JEL Classification: E52, E61, E31, E42, E43

Suggested Citation

Castelnuovo, Efrem and Nicoletti Altimari, Sergio and Rodriguez-Palenzuela, Diego, Definition of Price Stability, Range and Point Inflation Targets: The Anchoring of Long-Term Inflation Expectations (September 2003). Available at SSRN: https://ssrn.com/abstract=457572

Efrem Castelnuovo (Contact Author)

University of Padua - Department of Economics ( email )

via Del Santo 33
Padova, 35123
Italy

Sergio Nicoletti Altimari

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
0049 69 13440 (Phone)
0044 69 1344 6000 (Fax)

Diego Rodriguez-Palenzuela

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
(49) 69-1344-6480 (Phone)
(49) 69-1344-6575 (Fax) (Fax)

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