Tail comovement in option-implied inflation expectations as an indicator of anchoring

Sara Cecchetti (), Filippo Natoli and Laura Sigalotti ()
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Sara Cecchetti: Bank of Italy
Laura Sigalotti: Bank of Italy

No 1025, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: We analyse the degree of anchoring of inflation expectations in the euro area. Using a new estimation technique, we look at the tail co-movement between the moments of short- and long-term distributions of inflation expectations, where those distributions are estimated from daily quotes of inflation derivatives. We find that, since mid-2014, negative tail events impacting short-term inflation expectations have been increasingly channelled to long-term views, igniting both downward revisions in expectations and upward changes in uncertainty; instead, positive short-term tail events have left long-term moments mostly unaffected. This asymmetric behaviour may signal a disanchoring from below of long-term inflation expectations.

Keywords: disanchoring; inflation swaps; inflation options; option-implied density; tail comovement (search for similar items in EconPapers)
JEL-codes: C14 C58 E31 E44 G13 (search for similar items in EconPapers)
Date: 2015-07
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

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Working Paper: Tail co-movement in inflation expectations as an indicator of anchoring (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_1025_15

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