Inflation (De-)Anchoring in the Euro Area

Valentin Burban, Bruno De Backer () and Andreea Liliana Vladu

Working papers from Banque de France

Abstract: This article measures the degree of potential de-anchoring of inflation expectations in the euro area vis- -vis the inflation objective of the European Central Bank (ECB). A no-arbitrage term structure model that allows for a time-varying long-term mean of inflation expectations, pt*, is applied to inflation-linked swap (ILS) rates, while taking into account survey-based inflation forecasts. Estimates of pt* have been close to 2% since the mid-2000s, indicating that long-term inflation expectations have overall remained well anchored to the ECB s inflation objective. As this objective is however related to the "medium term", expectations components of various forward ILS rates are extracted: they appear to have been broadly anchored, with tentative signs of de-anchoring up to the two-year horizon. Using backcasted ILS rates, estimates of pt* are much above 2% in the early 1990s, but they converge to levels below 2% by the end of the decade when the ECB was established.

Keywords: Inflation-Linked Swap Rates; Surveys; No-Arbitrage; Shifting Endpoint; Inflation Expectations (search for similar items in EconPapers)
JEL-codes: G10 G32 Q54 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2024
New Economics Papers: this item is included in nep-ban, nep-eec, nep-eur and nep-mon
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https://www.banque-france.fr/system/files/2024-10/WP965.pdf

Related works:
Working Paper: Inflation (de-)anchoring in the euro area (2024)
Working Paper: Inflation (de-)anchoring in the euro area (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:965

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