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Measuring Inflation Anchoring and Uncertainty: A US and Euro Area Comparison

Olesya Grishchenko (), Sarah Mouabbi () and Jean-Paul Renne

No 2017-102, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We use several US and euro-area surveys of professional forecasters to estimate a dynamic factor model of inflation featuring time-varying uncertainty. We obtain survey-consistent distributions of future inflation at any horizon, both in the US and the euro area. Equipped with this model, we propose a novel measure of the anchoring of inflation expectations that accounts for inflation uncertainty. Our results suggest that following the Great Recession, inflation anchoring improved in the US, while mild de-anchoring occurred in the euro-area. As of our sample end, both areas appear to be equally anchored.

Keywords: Anchoring of inflation expectations; Dynamic factor model; Inflation; Stochastic volatility; Surveys of professional forecasters; Term structure of inflation expectations and inflation uncertainty (search for similar items in EconPapers)
JEL-codes: C32 E41 E44 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec, nep-mac and nep-mon
Date: 2017-10-03
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