 The drivers of market-based inflation expectations in the euro area and in the USChristian Höynck and Luca Rossi Economics Letters, 2023, vol. 232, issue C Abstract: In this paper, we propose a methodology to assess the structural drivers of inflation expectations, as measured by inflation-linked swaps. To this end, we estimate a Bayesian Vector Autoregressive (BVAR) model for the euro area (EA) and the United States (US) on daily asset price movements in the two economies. Shocks are identified using sign and magnitude restrictions, taking also into account international spillovers. The inclusion of inflation expectations allows to neatly differentiate between supply and demand innovations. The results suggest that over the course of 2021–23 inflation expectations in the US were steadily sustained by domestic demand, while in the EA they mostly reflected the role of supply shocks, and only more recently a growing strength of demand factors. Our evidence also indicates that monetary policy shocks progressively contributed in soothing inflation expectations in both jurisdictions, although with a different timing and vigour. Keywords: Inflation expectations; International transmission; Monetary policy; High-frequency identification (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:232:y:2023:i:c:s0165176523003488 DOI: 10.1016/j.econlet.2023.111323 Access Statistics for this article Economics Letters is currently edited by Economics Letters Editorial Office More articles in Economics Letters from Elsevier |
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