A new indicator of inflation expectations anchoring

Filippo Natoli and Laura Sigalotti

No 1996, Working Paper Series from European Central Bank

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, following Natoli and Sigalotti (2016). To quantify the degree of anchoring, we also propose a new indicator based on the results of a logistic regression, measuring the odds that strong negative shocks to short-term expectations are channelled to large declines in long-term expectations. The results reveal, for the euro area, an increase in the de-anchoring risk during the last quarter of 2014; while showing a significant reduction after the peak, our de-anchoring indicator remains high and volatile in 2015 and 2016. Expectations in the US and UK are instead found to be firmly anchored. JEL Classification: C14, C58, E31, E44, G13

Keywords: anchoring; inflation expectations; inflation options; inflation swaps; option-implied density; tail co-movement (search for similar items in EconPapers)
Date: 2017-01
New Economics Papers: this item is included in nep-mac and nep-mon
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Citations: View citations in EconPapers (11)

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Working Paper: An indicator of inflation expectations anchoring (2017)
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