Inflation and Deflationary Biases in Inflation Expectations

Michael Lamla, Damjan Pfajfar and Lea Rendell

VfS Annual Conference 2019 (Leipzig): 30 Years after the Fall of the Berlin Wall - Democracy and Market Economy from Verein für Socialpolitik / German Economic Association

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: inflation bias; deflationary bias; confidence in central banks; trust; ZLB; inflation; expectations; microdata (search for similar items in EconPapers)
JEL-codes: D84 E31 E37 E58 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Citations: View citations in EconPapers (5)

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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)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc19:203644

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