## Trend Inflation and Inflation Compensation

_IMF Working Papers, July 6, 2018_

## Source details

**Canonical URL:** [Trend Inflation and Inflation Compensation](https://www.imf.org/en/publications/wp/issues/2018/07/06/trend-inflation-and-inflation-compensation-45974)

## Other formats

- [Markdown version](/en/publications/wp/issues/2018/07/06/trend-inflation-and-inflation-compensation-45974/index.md)
- [Structured JSON version](/en/publications/wp/issues/2018/07/06/trend-inflation-and-inflation-compensation-45974/index.json)
- [Bundle manifest](/en/publications/wp/issues/2018/07/06/trend-inflation-and-inflation-compensation-45974/bundle-manifest.json)

## Bibliographic details
- Authors: Juan Angel Garcia, Aubrey Poon
- Published: July 6, 2018
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484362402.001

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### Overview
- This paper incorporates market-based inflation expectations into trend inflation estimation literature.
- Main empirical finding: a significant decline in euro area trend inflation since 2013.
- The finding is robust to using different measures of long-term inflation expectations in the estimation, both market-based and surveys.
- Implication highlighted: the 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.

### Key findings
- Significant decline in euro area trend inflation since 2013.
- Robustness: result holds when using different measures of long-term inflation expectations (market-based and surveys).
- Policy-relevant interpretation:
  - Supports the expansion of ECB’s UMP measures since 2015.
  - Provides a metric to monitor long-term inflation expectations and the likelihood of a sustained return of inflation towards levels below, but close to, 2% over the medium term.

### Methodology note
- The paper incorporates market-based inflation expectations into trend inflation estimation.
- Keywords and methodological terms in the source: IL swap market, inflation compensation, inflation expectation, inflation persistence, market-based inflation expectations, state space model, stochastic volatility, swap rate, trend inflation.

### Subjects and scope
- Subject areas listed: Financial crises, Global financial crisis of 2008-2009, Inflation, Inflation persistence, National accounts, Prices, Return on investment.
- Geographic scope: Global (with a focused empirical result for the euro area).

*Source: IMF Working Paper by Juan Angel Garcia and Aubrey Poon, July 6, 2018.*

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## Content in this bundle

- **Trend Inflation and Inflation Compensation, WP/18/154, July 2018**
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_Source: https://www.imf.org/en/publications/wp/issues/2018/07/06/trend-inflation-and-inflation-compensation-45974_