Macroeconomic implications of heterogeneous long-term inflation expectations: illustrative simulations through the ECB-BASE

Matthieu Darracq Paries and Srečko Zimic

Economic Bulletin Boxes, 2021, vol. 3

Abstract: We show how heterogeneous expectations across agents can change the macroeconomic outcomes of an increase in long-term inflation expectations. A broad-based expectation of higher longer-term inflation can be expected to lift the short to medium-term inflation outlook and have an expansionary effect on economic activity. If the financial markets are the only segment of the economy repricing higher longer-term inflation expectations, the associated tightening of financing conditions would hamper firms’ and households’ expenditure decisions and prevent any price pressures from building up. JEL Classification: E1, E3, I1

Keywords: ECB-BASE; Long-term inflation expectations; modelling (search for similar items in EconPapers)
Date: 2021-05
Note: 604093
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Citations: View citations in EconPapers (1)

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