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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

Abstract: 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
Date: 2017-02
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_1103_17

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