Asymmetric inflation target credibility

Winnie Coleman and Dieter Nautz

No 2025/1, Discussion Papers from Free University Berlin, School of Business & Economics

Abstract: This paper investigates the determinants of inflation target credibility (ITC) using a unique survey we designed to measure the credibility of the ECB's inflation target. Containing over 200,000 responses from German consumers collected between January 2019 and November 2024, our dataset enables us to estimate the effect of both positive and negative deviations of inflation from the 2% target on ITC. In contrast to the symmetry of the ECB's inflation target, we find that ITC is asymmetric, i.e. consumers respond significantly and plausibly signed to target deviations only when inflation is above target. When inflation is below target, however, the credibility of the inflation target cannot be improved by raising the inflation rate to close the gap.

Keywords: Credibility of Inflation Targets; Consumer Inflation Expectations; Expectation Formation (search for similar items in EconPapers)
JEL-codes: D84 E31 E52 E58 (search for similar items in EconPapers)
Date: 2025
New Economics Papers: this item is included in nep-eec and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:fubsbe:308802

DOI: 10.17169/refubium-45840

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