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American Economic Journal: Macroeconomics: Vol. 3 No. 2 (April 2011)

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Are Long-Run Inflation Expectations Anchored More Firmly in the Euro Area Than in the United States?

Article Citation

Beechey, Meredith J., Benjamin K. Johannsen, and Andrew T. Levin. 2011. "Are Long-Run Inflation Expectations Anchored More Firmly in the Euro Area Than in the United States?." American Economic Journal: Macroeconomics, 3(2): 104-29.

DOI: 10.1257/mac.3.2.104

Abstract

This paper compares the evolution of long-run inflation expectations in the euro area and the United States, using evidence from financial markets and surveys of professional forecasters. Survey data indicate that long-run inflation expectations are reasonably well anchored in both economies but reveal substantially greater dispersion across forecasters' long-horizon projections of US inflation. Analysis of daily data on inflation swaps and nominal-indexed bond spreads, which gauge compensation for expected inflation and inflation risk, also suggests that long-run inflation expectations are more firmly anchored in the euro area than in the United States. (JEL D84, E31, E37, E52, E58)

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Authors

Beechey, Meredith J. (Sveriges Riksbank)
Johannsen, Benjamin K. (Northwestern U)
Levin, Andrew T. (Federal Reserve Board)

JEL Classifications

D84: Expectations; Speculations
E31: Price Level; Inflation; Deflation
E37: Prices, Business Fluctuations, and Cycles: Forecasting and Simulation: Models and Applications
E52: Monetary Policy
E58: Central Banks and Their Policies

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