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Forceful or persistent: Wow the ECB's new inflation target affects households' inflation expectations

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  • Hoffmann, Mathias
  • Mönch, Emanuel
  • Pavlova, Lora
  • Schultefrankenfeld, Guido

Abstract

We study how households adjust their medium-term inflation expectations under the new ECB strategy. We find that survey respondents make little difference between the previous strategy of targeting inflation rates close to but below 2% and the new strategy with a symmetric 2% target. Yet, participants informed that the ECB might tolerate rates exceeding the target for some time, expect somewhat higher medium-term inflation. Respondents asked to assume inflation currently running below target place a significantly higher probability on outcomes above 2% in the medium term. Participants do not expect an undershooting when inflation is currently running above target.

Suggested Citation

  • Hoffmann, Mathias & Mönch, Emanuel & Pavlova, Lora & Schultefrankenfeld, Guido, 2023. "Forceful or persistent: Wow the ECB's new inflation target affects households' inflation expectations," Discussion Papers 27/2023, Deutsche Bundesbank.
    • Handle: RePEc:zbw:bubdps:279574
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    References listed on IDEAS

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    More about this item

    Keywords

    Monetary Policy Strategy; Household Inflation Expectations; Randomized Control Trial; Survey Data;
    All these keywords.

    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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