with Dieter Nautz (Journal of International Money and Finance)
Abstract: This paper investigates the determinants of inflation target credibility (ITC) using a unique survey we designed to measure the credibility of the ECB’s inflation target. Containing over 200,000 responses from German consumers collected between January 2019 and November 2024, our dataset enables us to estimate the effect of both positive and negative deviations of inflation from the 2% target on ITC. In contrast to the symmetry of the ECB's inflation target, we find that ITC is asymmetric, i.e. consumers respond significantly and plausibly signed to target deviations only when inflation is above target. When inflation is below target, however, the credibility of the inflation target cannot be improved by raising the inflation rate to close the gap.
Presented at:
2024 2nd Bonn-Berlin PhD Workshop (Bonn), Baltic Central Banks' Invited Lecture Series (Tallinn), IAAE (Thessaloniki)
with Dieter Nautz (Journal of Money, Credit and Banking)
Abstract: Using the exact wording of the ECB's definition of price-stability, we started a representative online survey of German citizens in January 2019 that is designed to measure long-term inflation expectations and the credibility of the inflation target. Our results indicate that credibility has decreased in our sample period, particularly in the course of the deep recession implied by the COVID-19 pandemic. Interestingly, even though inflation rates in Germany have been clearly below 2% for several years, credibility has declined mainly because Germans increasingly expect that inflation will be much higher than 2% over the medium term. We investigate how inflation expectations and the impact of the pandemic depend on personal characteristics including age, gender, education, and political attitude.
Presented at:
2022 Annual Congress of the Verein für Socialpolitik (Basel)
with Dieter Nautz (Economics Letters)
Abstract: We use a representative online survey to investigate the inflation expectations of German consumers and the credibility of the ECB’s inflation target during the recent high inflation period. We find that credibility has trended downwards since summer 2021, reaching an all-time low in April 2022. The high correlation between inflation expectations and the actual rate of inflation strongly indicate that inflation expectations have been de-anchored from the inflation target. With increasing inflation, German consumers are more convinced that - in contrast to the ECB’s inflation target - inflation will be well above 2% over the medium term.
Presented at:
2025 Topics in Time Series Econometrics Seminar (Reichenow)