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Inflation Expectations, Central Bank Credibility and the Global Financial Crisis

Petra Gerlach-Kristen () and Richhild Mössner
Authors registered in the RePEc Author Service: Richhild Moessner

Swiss Journal of Economics and Statistics (SJES), 2014, vol. 150, issue II, 55-87

Abstract: Long-run inflation expectations should not respond to economic news if the central bank is seen as credibly committed to stabilising inflation. In this paper we find that since the onset of the global financial crisis, medium and long-term inflation expectations implied by inflation swaps in the euro area, United Kingdom and United States have become less responsive to actual inflation and changes in oil and food prices. This suggests that the credibility of the central banks in these economies remains intact, despite large increases in their balance sheets due to unconventional monetary policy measures and the introduction of explicit forward guidance at the zero lower bound. We also find an increase in autocorrelation of inflation expectations, which suggests that shocks have a longer-lasting impact than before the financial crisis.

Keywords: Inflation expectations; central bank credibility; financial crisis (search for similar items in EconPapers)
JEL-codes: E58 E31 G01 (search for similar items in EconPapers)
Date: 2014
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