Template-Type: ReDIF-Paper 1.0
Author-Name: Michael J. Lamla
Author-X-Name-First: Michael J.
Author-X-Name-Last: Lamla
Author-Name: Damjan Pfajfar
Author-X-Name-First: Damjan
Author-X-Name-Last: Pfajfar
Author-Name: Lea Rendell
Author-X-Name-First: Lea
Author-X-Name-Last: Rendell
Title: Inflation and deflationary biases in inflation expectations
Abstract: We explore the consequences of losing confidence in the price-stability objective of central banks by quantifying the inflation and deflationary biases in inflation expectations. In a model with an occasionally binding zero-lower-bound constraint, we show that both inflation bias and deflationary bias can exist as a steady-state outcome. We assess the predictions of this model using unique individual-level inflation expectations data across nine countries that allow for a direct identification of these biases. Both inflation and deflationary biases are present and sizable, but different across countries. Even among the euro-area countries, perceptions of the European Central Bank's objectives are very distinct.
Length: 53 pages
Creation-Date: 2019-06
File-URL: https://www.bis.org/publ/work789.pdf
File-Format: Application/pdf
File-Function: Full PDF document
File-URL: https://www.bis.org/publ/work789.htm
File-Format: text/html
Number: 789
Classification-JEL: E31, E37, E58, D84
Keywords: inflation bias, deflationary bias, confidence in central banks, trust, effective lower bound, inflation expectations, microdata
Handle: RePEc:bis:biswps:789