Trend Inflation and Inflation Compensation

July 6, 2018

Preview Citation

Format: Chicago

Juan Angel Garcia, and Aubrey Poon. Trend Inflation and Inflation Compensation, (USA: International Monetary Fund, 2018) accessed September 20, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

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

Subject: Financial crises, Global financial crisis of 2008-2009, Inflation, Inflation persistence, National accounts, Prices, Return on investment

Keywords: Global, Global financial crisis of 2008-2009, IL swap market, Inflation, Inflation compensation, Inflation expectation, Inflation persistence, Market-based inflation expectations, Return on investment, State space model, Stochastic volatility, Swap rate, Trend inflation, WP

Publication Details

Pages:

45
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2018/154
Stock No:

WPIEA2018154
ISBN:

9781484362402
ISSN:

1018-5941

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