Biases in Survey Inflation Expectations: Evidence from the Euro Area

Jiaqian Chen, Lucyna Gornicka and Vaclav Zdarek

No 170, European Economy - Discussion Papers from Directorate General Economic and Financial Affairs (DG ECFIN), European Commission

Abstract: This paper reveals new facts about inflation expectations in the euro area. By employing local projection and least squares techniques, the following five facts are documented. First, individual inflation expectations overreact to individual news. Second, the cross-section average of individual inflation expectations underreacts to shocks initially, but overreacts in the medium term. Third, disagreement about future inflation increases in response to news when the current inflation is high, and declines when inflation is low, consistent with a zero lower bound of expectations. Fourth, overreaction of individual inflation expectations to news increased after the global financial crisis (GFC). Fifth, the reaction of average expectations (and of actual inflation) to shocks became more muted post-GFC in the euro area, but not in the US economy.

JEL-codes: D83 D84 E3 E4 E5 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2022-09
New Economics Papers: this item is included in nep-eec, nep-mon and nep-opm
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Related works:
Working Paper: Biases in Survey Inflation Expectations: Evidence from the Euro Area (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:euf:dispap:170

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