Inflation and Deflationary Biases in Inflation Expectations
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Washington DC: Board of Governors of the Federal Reserve System (US), 2019. (Finance and Economics Discussion Series; Vol. 2019, No. 042).
Research output: Working paper › Working papers
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TY - UNPB
T1 - Inflation and Deflationary Biases in Inflation Expectations
AU - Lamla, Michael
AU - PJaifar, Damian
AU - Rendell, Lea
PY - 2019/6
Y1 - 2019/6
N2 - We explore the consequences of losing confidence in the price-stability objective of central banks by quantifying the inflation and deflationary biases in inflation expectations. In a model with an occasionally binding zero-lower-bound constraint, we show that both inflation bias and deflationary bias can exist as a steady-state outcome. We assess the predictions of this model using unique individual-level inflation expectations data across nine countries that allow for a direct identification of these biases. Both inflation and deflationary biases are present and sizable, but different across countries. Even among the euro-area countries, perceptions of the European Central Bank’s objectives are very distinct.
AB - We explore the consequences of losing confidence in the price-stability objective of central banks by quantifying the inflation and deflationary biases in inflation expectations. In a model with an occasionally binding zero-lower-bound constraint, we show that both inflation bias and deflationary bias can exist as a steady-state outcome. We assess the predictions of this model using unique individual-level inflation expectations data across nine countries that allow for a direct identification of these biases. Both inflation and deflationary biases are present and sizable, but different across countries. Even among the euro-area countries, perceptions of the European Central Bank’s objectives are very distinct.
KW - Economics
KW - inflation bias
KW - deflationary bias
KW - confidence in central banks
KW - trust
KW - ZLB
KW - inflation expectations
KW - microdata
UR - https://www.mendeley.com/catalogue/042039a0-19e6-30a9-a7a1-6af0b636480f/
U2 - 10.17016/FEDS.2019.042
DO - 10.17016/FEDS.2019.042
M3 - Working papers
T3 - Finance and Economics Discussion Series
BT - Inflation and Deflationary Biases in Inflation Expectations
PB - Board of Governors of the Federal Reserve System (US)
CY - Washington DC
ER -