An indicator of inflation expectations anchoring
Filippo Natoli () and
Laura Sigalotti ()
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Laura Sigalotti: Bank of Italy
No 1103, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area
We compare the degree of anchoring of inflation expectations in the euro area, the United States and the United Kingdom, focusing on the post-crisis period. First of all, we estimate a set of measures of average and tail correlation using inflation swaps and options, as proposed by Natoli and Sigalotti (2016). To quantify the degree of anchoring, we also propose a new indicator based on the results of a logistic regression, obtained by measuring the odds that strong negative shocks to short-term expectations are connected to large declines in long-term expectations. The results reveal an increase in the risk of de-anchoring during the last quarter of 2014 for the euro area. While showing a significant reduction after the peak, our de-anchoring indicator remains high and volatile for 2015 and 2016. Inflation expectations in the US and the UK are instead found to be firmly anchored.
Keywords: inflation expectations; anchoring; inflation swaps; inflation options; tail comovement; odds ratio (search for similar items in EconPapers)
JEL-codes: C14 C58 E31 E44 G13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-eec and nep-mac
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Working Paper: A new indicator of inflation expectations anchoring (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_1103_17
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