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Deflation expectations

Ryan Banerjee and Aaron Mehrotra

No 699, BIS Working Papers from Bank for International Settlements

Abstract: We analyse the behaviour of inflation expectations during periods of deflation, using a large cross-country data set of individual professional forecasters' expectations. We find some evidence that expectations become less well anchored during deflations. Deflations are associated with a downward shift in inflation expectations and a somewhat higher backward-lookingness of those expectations. We also find that deflations are correlated with greater forecast disagreement. Delving deeper into such disagreement, we find that deflations are associated with movements in the lefthand tail of the distribution. Econometric evidence indicates that such shifts may have consequences for real activity.

Keywords: deflation; inflation expectations; forecast disagreement; monetary policy (search for similar items in EconPapers)
JEL-codes: E31 E58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Date: 2018-02
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