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Inflation and deflationary biases in inflation expectations

Michael Lamla (), Damjan Pfajfar () and Lea Rendell

No 789, BIS Working Papers from Bank for International Settlements

Abstract: We explore the consequences of losing confidence in the price-stability objective of central banks by quantifying the inflation and deflationary biases in inflation expectations. In a model with an occasionally binding zero-lower-bound constraint, we show that both inflation bias and deflationary bias can exist as a steady-state outcome. We assess the predictions of this model using unique individual-level inflation expectations data across nine countries that allow for a direct identification of these biases. Both inflation and deflationary biases are present and sizable, but different across countries. Even among the euro-area countries, perceptions of the European Central Bank's objectives are very distinct.

Keywords: inflation bias; deflationary bias; confidence in central banks; trust; effective lower bound; inflation expectations; microdata (search for similar items in EconPapers)
JEL-codes: E31 E37 E58 D84 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac and nep-mon
Date: 2019-06
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Related works:
Working Paper: Inflation and Deflationary Biases in Inflation Expectations (2019) Downloads
Working Paper: Inflation and Deflationary Biases in Inflation Expectations (2019) Downloads
Working Paper: Inflation and Deflationary Biases in Inflation Expectations (2019) Downloads
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