Trend Inflation and Inflation Compensation

Aubrey Poon, Juan Angel Garcia

Research output: Working paper

Abstract

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.
Original languageEnglish
Place of PublicationWashington D.C.
Pages1-45
Number of pages45
Publication statusPublished - 30 Jun 2018

Fingerprint

Inflation expectations
Inflation
Euro area

Keywords

  • trend inflation
  • market-based inflation expectations
  • state space model
  • stochastic volatility

Cite this

Poon, A., & Garcia, J. A. (2018). Trend Inflation and Inflation Compensation. (pp. 1-45). Washington D.C.
Poon, Aubrey ; Garcia, Juan Angel. / Trend Inflation and Inflation Compensation. Washington D.C., 2018. pp. 1-45
@techreport{925f4ca7a1bf4ceb8006987968031632,
title = "Trend Inflation and Inflation Compensation",
abstract = "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.",
keywords = "trend inflation, market-based inflation expectations, state space model, stochastic volatility",
author = "Aubrey Poon and Garcia, {Juan Angel}",
note = "IMF Working Paper No. WP/18/154",
year = "2018",
month = "6",
day = "30",
language = "English",
isbn = "9781484362402",
pages = "1--45",
type = "WorkingPaper",

}

Poon, A & Garcia, JA 2018 'Trend Inflation and Inflation Compensation' Washington D.C., pp. 1-45.

Trend Inflation and Inflation Compensation. / Poon, Aubrey; Garcia, Juan Angel.

Washington D.C., 2018. p. 1-45.

Research output: Working paper

TY - UNPB

T1 - Trend Inflation and Inflation Compensation

AU - Poon, Aubrey

AU - Garcia, Juan Angel

N1 - IMF Working Paper No. WP/18/154

PY - 2018/6/30

Y1 - 2018/6/30

N2 - 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.

AB - 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.

KW - trend inflation

KW - market-based inflation expectations

KW - state space model

KW - stochastic volatility

UR - https://www.imf.org/en/Publications/WP/Issues/2018/07/06/Trend-Inflation-and-Inflation-Compensation-45974

M3 - Working paper

SN - 9781484362402

SP - 1

EP - 45

BT - Trend Inflation and Inflation Compensation

CY - Washington D.C.

ER -

Poon A, Garcia JA. Trend Inflation and Inflation Compensation. Washington D.C. 2018 Jun 30, p. 1-45.

Access to Document