Anchoring of Inflation Expectations and the Role of Monetary Policy and Cost-Push Factors

This paper proposes a new measure proxying the degree of anchoring of inflation expectations on an individual forecaster level and studies the co-movement of this measure with expectations regarding monetary policy and different cost-push factors. In doing so, we rely on data taken from the ECB Survey of Professional Forecasters for both parts of the analysis. First, we construct a measure for the degree of anchoring of inflation expectations for each forecaster based on his inflation expectations taking into account both point and density forecasts. Second, we regress this anchoring measure on the professional forecasters' expectations regarding the policy rate of the ECB and three different cost factors potentially affecting the inflation rate: the crude oil price, the USD/EUR exchange rate, and unit labor costs. The main findings indicate that expectations regarding a tightening of monetary policy are generally able to enhance the degree of anchoring while an expected increase in both the crude oil price and unit labor costs seems to lower the degree of anchoring. The latter finding is more pronounced for shorter horizons.