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The Impact of Forward Guidance on Inflation Expectations: Evidence from the ECB

Author

Listed:
  • Marc de la Barrera
  • Juraj Falath
  • Dorian Henricot
  • Jean-Alexandre Vaglio

Abstract

This paper empirically investigates the impact of forward guidance announcements on inflation expectations in the Eurozone. We identify forward guidance shocks as changes in the 2-year nominal ECB yield on specific announcement days to measure changes in daily inflation swaps of different maturities. In the process, we also separately identify the effect of quantitative easing and interest rate change announcement shocks. We find that forward guidance was successful in reviving inflation expectations across maturities. Analyzing the transmission channels of forward guidance, we find evidence that both a reanchoring channel and a portfolio effect might have been at play.

Suggested Citation

  • Marc de la Barrera & Juraj Falath & Dorian Henricot & Jean-Alexandre Vaglio, 2017. "The Impact of Forward Guidance on Inflation Expectations: Evidence from the ECB," Working Papers 1010, Barcelona Graduate School of Economics.
  • Handle: RePEc:bge:wpaper:1010
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    References listed on IDEAS

    as
    1. Marius del Giudice Rodriguez & Emre Yoldas, 2016. "Drivers of Inflation Compensation : Evidence from Inflation Swaps in Advanced Economies," IFDP Notes 2016-12-30-2, Board of Governors of the Federal Reserve System (U.S.).
    2. Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 33(1), pages 125-132.
    3. Refet S Gürkaynak & Brian Sack & Eric Swanson, 2005. "Do Actions Speak Louder Than Words? The Response of Asset Prices to Monetary Policy Actions and Statements," International Journal of Central Banking, International Journal of Central Banking, vol. 1(1), May.
    4. P. Andrade & G. Gaballo & E. Mengus & B. Mojon, 2015. "Forward Guidance and Heterogeneous Beliefs," Working papers 573, Banque de France.
    5. Breckenfelder, Johannes & De Fiore, Fiorella & Andrade, Philippe & Karadi, Peter & Tristani, Oreste, 2016. "The ECB's asset purchase programme: an early assessment," Working Paper Series 1956, European Central Bank.
    6. De Santis, Roberto A., 2016. "Impact of the asset purchase programme on euro area government bond yields using market news," Working Paper Series 1939, European Central Bank.
    7. repec:bla:jecsur:v:31:y:2017:i:3:p:678-711 is not listed on IDEAS
    8. Richhild Moessner & David-Jan Jansen & Jakob de Haan, 2017. "Communication About Future Policy Rates In Theory And Practice: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 31(3), pages 678-711, July.
    9. Emi Nakamura & Jón Steinsson, 2013. "High Frequency Identification of Monetary Non-Neutrality: The Information Effect," NBER Working Papers 19260, National Bureau of Economic Research, Inc.
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    More about this item

    Keywords

    unconventional monetary policies; forward guidance; inflation expectations; empirical macroeconomics;

    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
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes

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