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Inflation Anchoring in the Euro Area

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  • Speck, Christian

Abstract

Did the decline in inflation rates from 2012 to 2015 and the low levels of market-based inflation expectations lead to de-anchored inflation dynamics in the euro area? This paper is the first time-varying event study to investigate the reaction of inflation-linked swap (ILS) rates - a market-based measure of inflation expectations - to macroeconomic surprises in the euro area. Compared to the pre-crisis period, surprises have a much stronger effect on spot ILS rates during the crisis. Medium-term forward ILS rates remain insensitive to news most of the time, which implies inflation anchoring. Only short periods of sensitivity on the part of medium-term forward ILS rates are identified at times of low inflation or recession. The sensitivity is lower over more distant forecast horizons such that medium-term sensitivity represents an inflation adjustment process and provides no evidence for a de-anchoring of inflation expectations or a loss of credibility for the Eurosystem's policy target.

Suggested Citation

  • Speck, Christian, 2016. "Inflation Anchoring in the Euro Area," Annual Conference 2016 (Augsburg): Demographic Change 145697, Verein für Socialpolitik / German Economic Association.
  • Handle: RePEc:zbw:vfsc16:145697
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    Cited by:

    1. repec:eee:jimfin:v:86:y:2018:i:c:p:70-92 is not listed on IDEAS
    2. O. Grishchenko & S. Mouabbi & J.-P. Renne, 2017. "The Joint Dynamics of U.S. and Euro-area Inflation Rates: Expectations and Time-varying Uncertainty," Working papers 622, Banque de France.

    More about this item

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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