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Inflation News and Euro-Area Inflation Expectations

Author

Listed:
  • Juan Angel García

    (European Central Bank)

  • Sebastian E. V. Werner

    (Independent)

Abstract

The protracted period of low inflation in the euro area since 2013 has triggered a significant decline in long-term inflation compensation. This paper re-investigates changes in the sensitivity of inflation compensation to inflation and macroeconomic news and expands existing work in two key dimensions: (i) we analyze all available (advanced) inflation releases for country and euro-area-wide inflation; (ii) we use daily frequency, time-varying sensitivity, and intraday regressions to reach more robust conclusions. Our key findings are twofold. First, timeliness is crucial in inflation markets: it is the early inflation news (flash estimates) which led to revisions in longterm compensation. Second, the anchoring of euro-area inflation expectations has weakened significantly since 2013.

Suggested Citation

  • Juan Angel García & Sebastian E. V. Werner, 2021. "Inflation News and Euro-Area Inflation Expectations," International Journal of Central Banking, International Journal of Central Banking, vol. 17(3), pages 1-60, September.
    • Handle: RePEc:ijc:ijcjou:y:2021:q:3:a:1
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    References listed on IDEAS

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    3. Ciccarelli, Matteo & García, Juan Angel, 2021. "Expectation spillovers and the return of inflation," Economics Letters, Elsevier, vol. 209(C).

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    More about this item

    JEL classification:

    • 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
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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