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Medium- vs. short-term consumer inflation expectations: evidence from a new euro area survey

Ewa Stanisławska and Maritta Paloviita

No 10/2021, Research Discussion Papers from Bank of Finland

Abstract: Using the ECB Consumer Expectations Survey, this paper investigates how consumers revise medium-term inflation expectations. We provide robust evidence of their adjustment to the current economic developments. In particular, consumers adjust medium-term inflation views in response to changes in short-term inflation expectations and, to a lesser degree, to changes in perceptions of current inflation. We find that the strong adverse Covid-19 pandemic shock contributed to an increase in consumer inflation expectations. We show that consumers who declare high trust in the ECB adjust their medium-term inflation expectations to a lesser degree than consumers with low trust. Our results increase understanding of expectations formation, which is an important issue for medium-term oriented monetary policy.

JEL-codes: D12 D84 E31 E58 (search for similar items in EconPapers)
Date: 2021-06-29
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:bof:bofrdp:2021_010

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