Inflation (de-)anchoring in the euro area

Valentin Burban, Bruno De Backer () and Andreea Liliana Vladu

No 2964, Working Paper Series from European Central Bank

Abstract: This article measures the degree of potential de-anchoring of inflation expectations in the euro area vis-à-vis the inflation objective of the European Central Bank (ECB). A no-arbitrage term structure model that allows for a time-varying long-term mean of inflation expectations, π∗t , is applied to inflation-linked swap (ILS) rates, while taking into account survey-basedinflation forecasts. Estimates of π∗t have been close to 2% since the mid-2000s, indicating that long-term inflation expectations have overall remained well anchored to the ECB’s inflation objective. As this objective is however related to the "medium term", expectations components of various forward ILS rates are extracted: they appear to have been broadlyanchored, with tentative signs of de-anchoring up to the two-year horizon. Using backcasted ILS rates, estimates of π∗t are much above 2% in the early 1990s, but they convergence to levels below 2% by the end of the decade when the ECB was established. JEL Classification: E31, E43, E47, E58

Keywords: inflation-linked swap rates; inflation expectations; no-arbitrage; shifting endpoint; surveys (search for similar items in EconPapers)
Date: 2024-07
New Economics Papers: this item is included in nep-cba, nep-eec and nep-mon
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Related works:
Working Paper: Inflation (De-)Anchoring in the Euro Area (2024)
Working Paper: Inflation (de-)anchoring in the euro area (2024)
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