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Inflation target credibility in times of high inflation

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  • Coleman, Winnie
  • Nautz, Dieter

Abstract

We use a representative online survey to investigate the inflation expectations of German consumers and the credibility of the ECB’s inflation target during the recent high inflation period. We find that credibility has trended downwards since summer 2021, reaching an all-time low in April 2022. The high correlation between inflation expectations and the actual rate of inflation strongly indicate that inflation expectations have been de-anchored from the inflation target. With increasing inflation, German consumers are more convinced that – in contrast to the ECB’s inflation target – inflation will be well above 2% over the medium term.

Suggested Citation

  • Coleman, Winnie & Nautz, Dieter, 2023. "Inflation target credibility in times of high inflation," Economics Letters, Elsevier, vol. 222(C).
    • Handle: RePEc:eee:ecolet:v:222:y:2023:i:c:s0165176522004049
    DOI: 10.1016/j.econlet.2022.110930
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    Cited by:

    1. Demgensky, Lisa & Fritsche, Ulrich, 2023. "Narratives on the causes of inflation in Germany: First results of a pilot study," WiSo-HH Working Paper Series 77, University of Hamburg, Faculty of Business, Economics and Social Sciences, WISO Research Laboratory.
    2. Mai Dao & Allan Dizioli & Chris Jackson & Pierre-Olivier Gourinchas & Mr. Daniel Leigh, 2023. "Unconventional Fiscal Policy in Times of High Inflation," IMF Working Papers 2023/178, International Monetary Fund.

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    More about this item

    Keywords

    Credibility of inflation targets; Household inflation expectations; Expectation formation;
    All these keywords.

    JEL classification:

    • C83 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Survey Methods; Sampling Methods
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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