Trust, but verify. De-anchoring of inflation expectations under learning and heterogeneity

Arbeitspapier

The paper studies how a prolonged period of subdued price developments may induce a de-anchoring of inflation expectations from the central bank's objective. This is shown within a framework where agents form expectations using adaptive learning, choosing among a set of alternative forecasting models. The analysis is accompanied by empirical evidence on the properties of inflation expectations in the euro area. Our results also suggest that monetary policy may lose effectiveness if delayed too much, as expectations are allowed to drift away from target for too long.

Object Details

• ISBN: 978-92-899-2716-1
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECB Working Paper ; No. 1994

Classification and Topics

• Classification: Wirtschaft ; Price Level; Inflation; Deflation ; Prices, Business Fluctuations, and Cycles: Forecasting and Simulation: Models and Applications ; Central Banks and Their Policies ; Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
• Subject: DSGE ; expectations de-anchoring ; inflation ; learning

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Busetti, Fabio ; Delle Monache, Davide ; Gerali, Andrea ; Locarno, Alberto
• Event: Veröffentlichung
• (who): European Central Bank (ECB)
• (where): Frankfurt a. M.
• (when): 2017

Further information

• DOI: doi:10.2866/755076
• Handle: http://hdl.handle.net/10419/154427
• Last update: 10.03.2025, 11:44 AM CET