| Description |
1 online resource (46 pages) |
| Series |
IMF Working Papers |
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IMF Working Papers; Working Paper ; no. 18/154
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| Contents |
Cover; Contents; 1. Introduction; 2. Market-based inflation compensation and expectations; 2.1 The euro area IL swap market; 2.2 An overview of euro area inflation expectations; 3. A model for trend inflation; 4. Inflation trends: level and uncertainty; 5. Robustness checks and discussion; 5.1 Different inflation compensation measures; 5.2 Evidence from survey data; 5.3 The role of long-term inflation expectations; 6. Trend inflation and inflation expectations; 6.1 Survey expectations and trend inflation; 6.2 Inflation compensation, trend inflation and risk premia; 7. Additional model results |
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8. Concluding remarks9. Appendix: estimation approach; 10. References; Figures; Figure 1: Euro area inflation and indicators of long-term inflation expectations; Figure 2: Euro area trend inflation estimates; Figure 3: Trend inflation estimates using different measures of long-term inflation compensation; Figure 4: Trend inflation estimates using long-term inflation compensation and survey inflation expectations; Figure 5: Trend inflation estimates using model especifications with and withouot long-term information; Figure 6: Bias in survey inflation expectations |
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Figure 7: Decomposition of long-term inflation compensation based on our trend inflation modelFigure 8: Estimates of inflation risk premium at different horizons; Figure 9: Additional model results (different model specifications); Figure A1: Trend inflation estimates using different priors |
| Summary |
This paper incorporates market-based inflation expectations to the growing literature on trend inflation estimation, and finds that there has been a significant decline in euro area trend inflation since 2013. This finding is robust to using different measures of long-term inflation expectations in the estimation, both market-based and surveys. That evidence: (i) supports the expansion of ECB's UMP measures since 2015; (ii) provides a metric to monitor long-term inflation expectations following their introduction, and the likelihood of a sustained return of inflation towards levels below, but close to, 2% over the medium term |
| Notes |
Print version record |
| Subject |
Inflation (Finance) -- Econometric models
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Nonlinear theories -- Econometric models
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Bayesian statistical decision theory.
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Bayesian statistical decision theory
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Inflation (Finance) -- Econometric models
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| Form |
Electronic book
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| Author |
Poon, Aubrey, author
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| ISBN |
148436788X |
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1484362403 |
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9781484362402 |
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9781484367889 |
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