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Are Long-Term Inflation Expectations Well-Anchored? Evidence From The Euro Area And The United States

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  • Tsvetomira Tsenova

Abstract

type="main"> This paper analyses the stability of long-term inflation expectations and uncertainty, based on their sensitivity to innovations to observed inflation, short- and medium-term forecast news. News is defined in a subjective sense and derived from revisions to shorter-term fixed-target forecasts. The assessment tests for presence of non-linear effects, including regime changes during disinflation in the USA in the 1990s and the recent financial crisis. Stability is also investigated in terms of level evolution, based on a structural non-linear and non-Gaussian learning model to uncover the presence of a common trend underlying the long-term dynamics of inflation, individual expectations, and uncertainty.

Suggested Citation

  • Tsvetomira Tsenova, 2015. "Are Long-Term Inflation Expectations Well-Anchored? Evidence From The Euro Area And The United States," Bulletin of Economic Research, Wiley Blackwell, vol. 67(1), pages 65-82, January.
    • Handle: RePEc:bla:buecrs:v:67:y:2015:i:1:p:65-82
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    File URL: http://hdl.handle.net/10.1111/j.1467-8586.2012.00474.x
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    References listed on IDEAS

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    1. Giordani, Paolo & Soderlind, Paul, 2003. "Inflation forecast uncertainty," European Economic Review, Elsevier, vol. 47(6), pages 1037-1059, December.
    2. Robert Rich & Joseph Tracy, 2010. "The Relationships among Expected Inflation, Disagreement, and Uncertainty: Evidence from Matched Point and Density Forecasts," The Review of Economics and Statistics, MIT Press, vol. 92(1), pages 200-207, February.
    3. Athanasios Orphanides & John C. Williams, 2005. "Inflation scares and forecast-based monetary policy," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(2), pages 498-527, April.
    4. Gianna Boero & Jeremy Smith & Kenneth F. Wallis, 2008. "Here is the news: forecast revisions in the Bank of England survey of external forecasters," National Institute Economic Review, National Institute of Economic and Social Research, vol. 203(1), pages 68-77, January.
    5. Orphanides, Athanasios & Williams, John C., 2007. "Robust monetary policy with imperfect knowledge," Journal of Monetary Economics, Elsevier, vol. 54(5), pages 1406-1435, July.
    6. Wallis, Kenneth F., 2003. "Chi-squared tests of interval and density forecasts, and the Bank of England's fan charts," International Journal of Forecasting, Elsevier, vol. 19(2), pages 165-175.
    7. Goodfriend, Marvin & King, Robert G., 2005. "The incredible Volcker disinflation," Journal of Monetary Economics, Elsevier, vol. 52(5), pages 981-1015, July.
    8. Jeremy Smith & Kenneth F. Wallis, 2009. "A Simple Explanation of the Forecast Combination Puzzle," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 71(3), pages 331-355, June.
    9. Zarnowitz, Victor & Lambros, Louis A, 1987. "Consensus and Uncertainty in Economic Prediction," Journal of Political Economy, University of Chicago Press, vol. 95(3), pages 591-621, June.
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    Cited by:

    1. Tsvetomira Tsenova, 2014. "International monetary transmission with bank heterogeneity and default risk," Annals of Finance, Springer, vol. 10(2), pages 217-241, May.
    2. Catherine Mathieu & Henri Sterdyniak, 2015. "What future for taxation in the EU?," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(5), pages 5-13.
    3. Mazumder, Sandeep, 2018. "Inflation in Europe after the Great Recession," Economic Modelling, Elsevier, vol. 71(C), pages 202-213.
    4. repec:zbw:bofrdp:2018_024 is not listed on IDEAS
    5. repec:zbw:bofrdp:2016_015 is not listed on IDEAS
    6. Sami Oinonen & Maritta Paloviita, 2017. "How Informative are Aggregated Inflation Expectations? Evidence from the ECB Survey of Professional Forecasters," Journal of Business Cycle Research, Springer;Centre for International Research on Economic Tendency Surveys (CIRET), vol. 13(2), pages 139-163, November.
    7. Oinonen, Sami & Paloviita, Maritta & Viren, Matti, 2018. "Effects of monetary policy decisions on professional forecasters’ expectations and expectations uncertainty," Research Discussion Papers 24/2018, Bank of Finland.
    8. repec:hal:spmain:hal-03459745 is not listed on IDEAS
    9. Tomasz Łyziak & Maritta Paloviita, 2017. "Formation of inflation expectations in turbulent times. Recent evidence from the European Survey of Professional Forecasters," NBP Working Papers 261, Narodowy Bank Polski.
    10. Oinonen, Sami & Viren, Matti, 2021. "Effects of Monetary Policy Decisions on Professional Forecasters' Expectations and Expectation Uncertainty," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 74(2), pages 245-280.
    11. Catherine Mathieu & Henri Sterdyniak, 2015. "What future for taxation in the EU?," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(5), pages 5-13.
    12. repec:hal:spmain:info:hdl:2441/6m2bi4eoh48hnr5ile6iol143v is not listed on IDEAS
    13. Łyziak, Tomasz & Paloviita, Maritta, 2017. "Formation of inflation expectations in turbulent times : Can ECB manage inflation expectations of professional forecasters?," Research Discussion Papers 13/2017, Bank of Finland.
    14. repec:zbw:bofrdp:2017_013 is not listed on IDEAS

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