The Long-term Distribution of Expected Inflation in the Euro Area: What Has Changed since the Great Recession?

Dovern J, Kenny G (2017)


Publication Language: English

Publication Type: Other publication type

Publication year: 2017

Series: ECB Working Paper

Article Number: 1999

URI: http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1999.en.pdf

Abstract

This  paper  analyses  the  distribution  of  long-term  inflation  expectations  in  the  euro  area using individual density forecasts from the ECB Survey of Professional Forecasters. We exploit the panel dimension in this dataset to examine whether this distribution became less stable following the Great  Recession,  subsequent  sovereign  debt  crisis  and  period  when  the  lower  bound  on  nominal interest  rates  became  binding.  Our  results  suggest  that  the  distribution  did  change  along  several dimensions. We document a small downward shift in mean long-run expectations toward the end of our  sample  although  they  remain  aligned  with  the  ECB  definition  of  price  stability.  More  notably, however, we identify a trend toward a more uncertain and negatively skewed distribution with higher tail risk. Another main finding is that key features of the distribution are influenced by macroeconomic news, including the ex post historical track record of the central bank. 

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How to cite

APA:

Dovern, J., & Kenny, G. (2017). The Long-term Distribution of Expected Inflation in the Euro Area: What Has Changed since the Great Recession?

MLA:

Dovern, Jonas, and Geoff Kenny. The Long-term Distribution of Expected Inflation in the Euro Area: What Has Changed since the Great Recession? 2017.

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