Trend Inflation and Inflation Compensation

Author/Editor:

Juan Angel Garcia ; Aubrey Poon

Publication Date:

July 6, 2018

Electronic Access:

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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

Series:

Working Paper No. 2018/154

Subject:

English

Publication Date:

July 6, 2018

ISBN/ISSN:

9781484362402/1018-5941

Stock No:

WPIEA2018154

Pages:

45

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