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Trend Inflation and Inflation Compensation
Author:
Juan Angel Garcianull

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Aubrey Poonnull

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Series:
IMF Working Papers
Volume/Issue:
Volume 2018: Issue 154
Language:
English
Publication Date:
06 Jul 2018
DOI:
https://doi.org/10.5089/9781484362402.001
ISBN:
9781484362402
ISSN:
1018-5941
Pages:
45
Keywords:
WP; inflation expectation; trend inflation; market-based inflation expectations; state space model; stochastic volatility; inflation compensation; swap rate; IL swap market; Inflation; Return on investment; Global financial crisis of 2008-2009; Inflation persistence; Global
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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.
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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
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2018: Issue 154