The European Central Bank’s Strategy Review and the Management of Inflation Expectations

Monika Wohlmann ()
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Monika Wohlmann: FOM University of Applied Science

A chapter in Eurasian Business and Economics Perspectives, 2022, pp 241-256 from Springer

Abstract: Abstract In July 2021, the European Central Bank (ECB) announced the results of its Monetary Policy Strategy Review. Among the most important changes to its policy strategy were the symmetric alignment of the inflation target to 2% and an adjustment of the Harmonized Index of Consumer Prices (HICP) for owner-occupied housing, which should come into effect in the near future. This paper critically reflects on the adjustment of the ECB’s strategy in the light of inflation perceptions and expectations. Data from the EU Commission’s consumer survey were used for this purpose. It is examined to what extent inflation perception and inflation expectations in the past corresponded to the inflation rates actually measured at that time. This analysis is carried out at the level of the major euro area countries in order to identify any country-specific differences. Between inflation perception and actual inflation, the correlation analyses revealed a significant though only slight correlation. To test the accuracy of inflation expectations, a Granger causality test was conducted: As a result, inflation expectations could hardly predict actual inflation. On the contrary, actual inflation rates seemed to play a major role in determining expectations. Against the background of these findings, greater attention by the ECB to better managing expectations seems entirely appropriate.

Keywords: Monetary policy; Inflation; Inflation expectation; Inflation perception; European Central Bank; ECB strategy review (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:spr:eurchp:978-3-031-15531-4_15

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DOI: 10.1007/978-3-031-15531-4_15

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