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What drives updates of inflation expectations? A Bayesian VAR analysis for the G-7 countries

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  • Belke, Ansgar
  • Beckmann, Joscha
  • Dubova, Irina

Abstract

Inflation expectations play a crucial role for monetary policy transmission, having become even more important since the emergence of unconventional monetary policy. Based on survey data provided by Consensus Economics, we assess determinants of professional inflation expectations for the G7 economies. We emphasize the role of international spillovers in inflation expectations stemming from monetary policy decisions in the US. We also consider several possible determinants, such as changes in the path of monetary policy, oil price shocks and uncertainty measures. Based on a Bayesian VAR, we find significant evidence for international spillovers stemming from expectations about US monetary policy based on impulse-response functions and forecast error decompositions. We also provide similar evidence on spillovers from the dispersion across inflation forecasts.

Suggested Citation

  • Belke, Ansgar & Beckmann, Joscha & Dubova, Irina, 2018. "What drives updates of inflation expectations? A Bayesian VAR analysis for the G-7 countries," VfS Annual Conference 2018 (Freiburg, Breisgau): Digital Economy 181518, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc18:181518
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    More about this item

    Keywords

    Bayesian VAR; expectations; inflation; survey data; updating;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • 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

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