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Biases in Survey Inflation Expectations: Evidence from the Euro Area
Author:
Mr. Jiaqian Chen 0000000404811396 https://isni.org/isni/0000000404811396 International Monetary Fund

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,
Lucyna Gornicka
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, and
Vaclav Zdarek
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Series:
IMF Working Papers
Volume/Issue:
Volume 2022: Issue 205
Language:
English
Publication Date:
30 Sep 2022
DOI:
https://doi.org/10.5089/9798400204401.001
ISBN:
9798400204401
ISSN:
1018-5941
Pages:
51
Keywords:
expectations formation; surveys of expectations; informational rigidities; inflation expectation; survey inflation expectation; responses of inflation expectation; forecasts of inflation; Inflation; Zero lower bound; Oil production; Supply shocks; Global
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This paper documents five facts about inflation expectations in the euro area. First, individual inflation forecasts overreact to individual news. Second, the cross-section average of individual forecasts of inflation underreact to shocks initially, but overreacts in the medium term. Third, disagreement about future inflation increases in response to news when the current inflation is high, and declines when inflation is low, consistent with a zero lower bound of expectations. Fourth, overreaction of individual inflation forecasts to news increased after the global financial crisis (GFC). Fifth, the reaction of average expectations (and of actual inflation) to shocks became more muted post-GFC in the euro area, but not in the U.S.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2022: Issue 205