Anchoring of Consumers' Inflation Expectations: Evidence from Microdata

Lena Dräger and Michael Lamla

VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order from Verein für Socialpolitik / German Economic Association

Abstract: In this paper we explore the degree of anchoring of inflation expectations of consumers by analysing the comovement in short- and long-run expectations. If inflation expectations are firmly anchored, a transitory shock should influence the short-run inflation expectations but not effect long-run inflation expectations. Utilizing the University of Michigan Survey of Consumer s rotating panel microstructure, we can identify and analyse to which extend individuals adjust their short- and long-run inflation expectations within six months. Our results indicate that inflation expectations became more anchored over time. Interestingly, the comovement fell substantially after 1996 which is characterised by the pre-preemptive tightening of the FED and not with the Volker Disinflation. Analysing the probability of revising long- and short-run expectations simultaneously, we find no such structural change in time. Hence, while the comovement has become smaller over time the probability of adjusting long- and short-run expectations has remained unaffected. Looking at the current economic crises the comovement dropped between 2008-09 and since then is rising again. Regarding the possible determinants of the strength of comovement we find that high inflation, higher levels of expected inflation of professional forecasters and news on inflation as well as news on fiscal deficts lead to a greater comovement and hence a lower anchoring of inflation expectations. On the other hand tighter monetary policy improves the degree of anchoring.

JEL-codes: D84 E31 E58 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/79889/1/VfS_2013_pid_849.pdf (application/pdf)

Related works:
Working Paper: Anchoring of Consumers’ Inflation Expectations: Evidence from Microdata (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc13:79889

Access Statistics for this paper

More papers in VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order from Verein für Socialpolitik / German Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().