Would households understand average inflation targeting?

Mathias Hoffmann, Emanuel Moench, Lora Pavlova and Guido Schultefrankenfeld

Journal of Monetary Economics, 2022, vol. 129, issue S, S52-S66

Abstract: Yes, they would. In a randomized control trial, we provide groups of respondents from the Bundesbank Online Panel Households with information about a hypothetical alternative ECB monetary policy regime akin to the Federal Reserve’s flexible average inflation targeting (AIT). Inflation expectations significantly increase for the treated individuals. When we provide additional information about near-term inflation, for low levels of trust in the ECB the adjustment of inflation expectations tends to be negative while it is positive for intermediate and higher levels of trust. We assess the economic significance of our findings by comparing two model economies under different monetary policy strategies, calibrated to match the difference in medium-term inflation expectations from our survey results. Under AIT, inflation is substantially less volatile and the frequency of hitting the lower bound on interest rates is considerably reduced.

Keywords: Monetary policy strategy; Household inflation expectations; Randomized control trial; Survey data (search for similar items in EconPapers)
JEL-codes: E31 E32 F33 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S030439322200023X
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Would Households Understand Average Inflation Targeting? (2022)
Working Paper: Would households understand average inflation targeting? (2022)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:129:y:2022:i:s:p:s52-s66

DOI: 10.1016/j.jmoneco.2022.02.006

Access Statistics for this article

Journal of Monetary Economics is currently edited by R. G. King and C. I. Plosser

More articles in Journal of Monetary Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().