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De-anchored long-term inflation expectations in a low growth, low rate environment

Author

Listed:
  • Guido Bulligan

    (Bank of Italy)

  • Francesco Corsello

    (Bank of Italy)

  • Stefano Neri

    (Bank of Italy)

  • Alex Tagliabracci

    (Bank of Italy)

Abstract

This paper provides evidence of de-anchoring of long-term inflation expectations in the euro area based on both time series and panel methods and data from the ECB Survey of Professional Forecasters. Long-term inflation expectations recorded two sharp and permanent declines: the first after the 2013 disinflation, the second in early 2019. Long-term inflation expectations also started reacting to short-term developments in inflation after the 2013 disinflation. Long-term growth expectations have declined continuously since the early 2000s. Looking forward, the increased likelihood of a low growth and low inflation environment may reduce the monetary policy space. The positive correlation between long-term real GDP growth and inflation expectations suggests that forecasters view future macroeconomic developments as driven mainly by demand-side shocks. Under these circumstances, the risk of a further de-anchoring of long-term inflation expectations remains high.

Suggested Citation

  • Guido Bulligan & Francesco Corsello & Stefano Neri & Alex Tagliabracci, 2021. "De-anchored long-term inflation expectations in a low growth, low rate environment," Questioni di Economia e Finanza (Occasional Papers) 624, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:opques:qef_624_21
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    File URL: https://www.bancaditalia.it/pubblicazioni/qef/2021-0624/QEF_624_21.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    survey data; panel data; professional forecasters; inflation expectations; monetary policy;
    All these keywords.

    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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