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Three Dimensions of Central Bank Credibility and Inferential Expectations: The Euro Zone

Author

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  • Timo Henckel

    (Australian National University & Centre for Applied Macroeconomic Analysis)

  • Gordon D. Menzies

    (University of Technology Sydney & Centre for Applied Macroeconomic Analysis)

  • Peter Moffat

    (University of East Anglia)

  • Daniel J. Zizzo

    (University of Queensland & Centre for Applied Macroeconomic Analysis)

Abstract

We use the behavior of inflation among Eurozone countries to provide information about the degree of credibility of the European Central Bank (ECB) since 2008. We define credibility along three dimensions-official target credibility, cohesion credibility and anchoring credibility - and show in a new econometric framework that the latter has deteriorated in recent history; that is, price setters are less likely to rely on the ECB target when forming inflation expectations.

Suggested Citation

  • Timo Henckel & Gordon D. Menzies & Peter Moffat & Daniel J. Zizzo, 2019. "Three Dimensions of Central Bank Credibility and Inferential Expectations: The Euro Zone," Working Paper Series 2019/02, Economics Discipline Group, UTS Business School, University of Technology, Sydney.
    • Handle: RePEc:uts:ecowps:2019/02
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    More about this item

    Keywords

    credibility; infl?ation; expectations; anchoring; monetary union; inferential expectations;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • 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

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