Inflation expectations in the euro area: trends and policy considerations

Christophe Blot (1) , Caroline Bozou (1) , Jérôme Creel (1)

1 OFCE - Observatoire français des conjonctures économiques (Sciences Po)

Most economic decisions of economic agents are based upon expectations of inflation. Inflation expectations play an important role for the determination of inflation and the transmission of monetary policy. They are not observable and are inferred from alternative indicators. We show that all these measures generally fail to predict inflation. We also assess their anchoring and show that long-term expectations are better anchored to the inflation target than inflation expectations at shorter horizons. This paper was provided by the Policy Departmentfor Economic, Scientific and Quality of Life Policies at the request of the committee on Economic and Monetary Affairs (ECON) ahead of the Monetary Dialogue with the ECB President on 7 February 2022.

Keywords: central bank; economic forecasting; euro area; inflation; monetary policy

Domains: Quantitative Finance [q-fin]

Christophe Blot, Caroline Bozou, Jérôme Creel. Inflation expectations in the euro area: trends and policy considerations. 2022, ⟨10.2861/744032⟩. ⟨hal-03943684⟩