ARE LONG-TERM INFLATION EXPECTATIONS WELL-ANCHORED? EVIDENCE FROM THE EURO AREA AND THE UNITED STATES

Tsvetomira Tsenova

Bulletin of Economic Research, 2015, vol. 67, issue 1, 65-82

Abstract: type="main">

This paper analyses the stability of long-term inflation expectations and uncertainty, based on their sensitivity to innovations to observed inflation, short- and medium-term forecast news. News is defined in a subjective sense and derived from revisions to shorter-term fixed-target forecasts. The assessment tests for presence of non-linear effects, including regime changes during disinflation in the USA in the 1990s and the recent financial crisis. Stability is also investigated in terms of level evolution, based on a structural non-linear and non-Gaussian learning model to uncover the presence of a common trend underlying the long-term dynamics of inflation, individual expectations, and uncertainty.

Date: 2015
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