Inflation Expectations, Consumption and the Lower Bound: Micro Evidence from a Large Euro Area Survey

Significance The surge in inflation this year owes more to supply bottlenecks caused by the release of pent-up demand than to falling unemployment. In the decade before the pandemic, US unemployment more than halved and euro-area unemployment nearly halved, but inflation remained below target in both economic areas. Impacts Central banks face the dilemma of raising rates too early for growth and too late for inflation, and may struggle to dampen expectations. The threat of a possible revival of the pandemic will help temporarily to cool inflation expectations that have surged in 2021. The trade-off between unemployment and inflation that has been missing for many years may emerge again once the pandemic is finally over.

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Inflation expectations in the euro area: are consumers rational?

Review of World Economics ◽

10.1007/s10290-010-0058-6 ◽

2010 ◽

Vol 146 (3) ◽

pp. 591-607 ◽

Cited By ~ 13

Author(s):

Francisco Dias ◽

Cláudia Duarte ◽

António Rua

Keyword(s):

Euro Area ◽

Inflation Expectations

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Inflation Forecasts: Are Market-Based and Survey-Based Measures Informative?

International Journal of Financial Research ◽

10.5430/ijfr.v9n1p171 ◽

2017 ◽

Vol 9 (1) ◽

pp. 171 ◽

Cited By ~ 3

Author(s):

Magdalena Grothe ◽

Aidan Meyler

Keyword(s):

United States ◽

Euro Area ◽

Predictive Power ◽

The United States ◽

Inflation Expectations ◽

Survey Of Professional Forecasters ◽

Inflation Forecasts

This paper analyses the predictive power of market-based and survey-based inﬂation expectations for actual inﬂation. We use the data on inﬂation swaps and the forecasts from the Survey of Professional Forecasters for the euro area and the United States. The results show that both market-based and survey-based measures have a non-negligible predictive power for inﬂation developments, as compared to statistical benchmark models. Therefore, for horizons of one and two years ahead, market-based and survey-based inﬂation expectations actually convey information on future inﬂation developments.

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Inflation Expectations and Readiness to Spend: Cross-Sectional Evidence

American Economic Journal Economic Policy ◽

10.1257/pol.20130292 ◽

2015 ◽

Vol 7 (1) ◽

pp. 1-35 ◽

Cited By ~ 53

Author(s):

Rüdiger Bachmann ◽

Tim O. Berg ◽

Eric R. Sims

Keyword(s):

Lower Bound ◽

Inflation Expectations ◽

Zero Lower Bound ◽

Cross Sectional ◽

Percentage Point Increase ◽

Expected Inflation ◽

Percentage Points ◽

Point Increase ◽

The Impact ◽

The Relationship

There have been suggestions for monetary policy to engineer higher inflation expectations to stimulate spending. We examine the relationship between expected inflation and spending attitudes using the microdata from the Michigan Survey of Consumers. The impact of higher inflation expectations on the reported readiness to spend on durables is generally small, outside the zero lower bound, often statistically insignificant, and inside of it typically significantly negative. In our baseline specification, a one percentage point increase in expected inflation during the recent zero lower bound period reduces households' probability of having a positive attitude towards spending by about 0.5 percentage points. (JEL D12, D84, E21, E31, E52)

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