Inflation (de-)anchoring in the euro area

Valentin Burban (), Bruno De Backer () and Andreaa Liliana Vladu ()
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Valentin Burban: Banque de France and Aix-Marseille University, Aix-Marseille School of Economics
Andreaa Liliana Vladu: European Central Bank

No 457, Working Paper Research from National Bank of Belgium

Abstract: This article measures the degree of potential de-anchoring of inflation expectations in the euro area vis-à-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, π୲∗, is applied to inflation-linked swap (ILS) rates, while taking into account survey-based inflation forecasts. Estimates of π୲∗ 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 π୲∗ 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: E31 E43 E47 E58 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2024-09
New Economics Papers: this item is included in nep-ban, nep-eec, nep-eur and nep-mon
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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:nbb:reswpp:202409-457

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