Anchoring of Consumers' Inflation Expectations

Michael Lamla and Lena Draeger
Authors registered in the RePEc Author Service: Lena Dräger

No 13-339, KOF Working papers from KOF Swiss Economic Institute, ETH Zurich

Abstract: In this paper we explore the degree of anchoring of consumers' long-run inflation expectations. If expectations are firmly anchored, short- and long-run expectations should show no comovement in response to transitory shocks. Utilizing the University of Michigan Survey of Consumer's rotating panel microstructure, we can identify changes in inflation expectations of individual consumers over time. Our results indicate that long-run inflation expectations became more anchored over the last decades. While the degree of comovement fell significantly after 1996, the probability of a joint adjustment stayed constant. Regarding the possible determinants, we find that consumers' rising interest rate expectations and perceived news on the monetary policy stance have a detrimental effect on the anchoring of long-run expectations. This effect is no longer present in the post-1996 period. Notably, a positive effect of perceived news on government debt on the degree of comovement emerges after 1996, alluding to a potentially problematic link between fiscal and monetary policy.

Keywords: Anchoring; Inflation expectations; Microdata; News (search for similar items in EconPapers)
Pages: 24 pages
Date: 2013-07
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:kof:wpskof:13-339

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