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Anchoring of long-term inflation expectations: Do inflation target formulations matter?

Christoph Grosse Steffen

VfS Annual Conference 2021 (Virtual Conference): Climate Economics from Verein für Socialpolitik / German Economic Association

Abstract: We use a novel anchoring-measure based on the distribution across professional forecasters' point forecasts to test empirically whether target formulations matter for the anchoring of long-term inflation expectations. In a panel of 29 countries, we find that the formulation of a point target increases the degree of anchoring compared with countries with a mere quantitative definition of price stability. A point target is more sucessful in limiting upside risks to inflation, while a range target allows for higher downside risk to the inflation outlook. Our results suggest that range targets and tolerance bands are interpreted by professional forecasters as zones where policy is less active.

Keywords: monetary policy; inflation targeting; inflation risk; expectations anchoring (search for similar items in EconPapers)
JEL-codes: D84 E42 E52 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc21:242466

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