Inflation and Deflationary Biases in Inflation Expectations

Michael Lamla, Damjan Pfajfar and Lea Rendell

No 2019-042, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We explore the consequences of losing confidence in the price-stability objective of central banks by quantifying the inflation and deflationary biases in inflation expectations. In a model with an occasionally binding zero-lower-bound constraint, we show that an inflation bias as well as a deflationary bias exist as a steady-state outcome. We assess the predictions of this model using unique individual-level inflation expectations data across nine countries that allow for a direct identification of these biases. Both inflation and deflationary biases are present (and sizable) in inflation expectations of these individuals. Among the euro-area countries in our sample, we can document significant differences in perceptions of the European Central Bank??s objectives, despite having a common monetary policy.

Keywords: zero lower bound (ZLB); Confidence in Central Banks; Deflationary Bias; Inflation Bias; Inflation Expectations; Microdata (search for similar items in EconPapers)
JEL-codes: D84 E31 E37 E58 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2019-06-03
New Economics Papers: this item is included in nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://www.federalreserve.gov/econres/feds/files/2019042pap.pdf (application/pdf)

Related works:
Working Paper: Inflation and deflationary biases in inflation expectations (2019)
Working Paper: Inflation and Deflationary Biases in Inflation Expectations (2019)
Working Paper: Inflation and Deflationary Biases in Inflation Expectations (2019)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2019-42

DOI: 10.17016/FEDS.2019.042

Access Statistics for this paper

More papers in Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.) Contact information at EDIRC.
Bibliographic data for series maintained by Ryan Wolfslayer ; Keisha Fournillier ().