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

Keywords

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

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