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Assessing the anchoring of inflation expectations

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  • Strohsal, Till
  • Winkelmann, Lars

Abstract

This paper proposes a new approach to assess the degree of anchoring of inflation expectations. We extend the static setup of the predominant news regressions by introducing exponential smooth transition autoregressive dynamics. Our approach provides estimates of a market-perceived inflation target as well as the strength of the anchor that holds expectations at that target. A cross-country study based on a new data set of daily break-even inflation rates for the US, EMU, UK and Sweden shows that the degree of anchoring varies substantially across countries and expectations horizons.

Suggested Citation

  • Strohsal, Till & Winkelmann, Lars, 2015. "Assessing the anchoring of inflation expectations," Journal of International Money and Finance, Elsevier, vol. 50(C), pages 33-48.
    • Handle: RePEc:eee:jimfin:v:50:y:2015:i:c:p:33-48
    DOI: 10.1016/j.jimonfin.2014.09.001
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    More about this item

    Keywords

    Monetary policy; Anchoring; Inflation expectations; Break-even inflation rates; ESTAR model;
    All these keywords.

    JEL classification:

    • 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
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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