Do Inflation Expectations Become More Anchored During a Disinflation Episode? Evidence for Euro Area Firms

Ursel Baumann, Annalisa Ferrando, Dimitris Georgarakos, Yuriy Gorodnichenko and Timo Reinelt

No 33440, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Does a successful disinflation contribute to the anchoring of inflation expectations? We provide novel survey evidence on the dynamics of euro area firms’ inflation expectations during the disinflation episode since 2022. We show that firms’ short term inflation expectations declined steadily towards the inflation target as the disinflation progressed. However, we also document a thick tail in longer-term inflation expectations, substantial disagreement about the inflation outlook, and an increased sensitivity of longer-term inflation expectations to short-term inflation expectations. These findings suggest that it may take more time to bring inflation expectations fully in line with central bank objectives.

JEL-codes: E3 (search for similar items in EconPapers)
Date: 2025-02
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Working Paper: Do Inflation Expectations Become More Anchored During a Disinflation Episode? Evidence for Euro Area Firms (2025)
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