Research
Publications
Inflation Expectations, Inflation Target Credibility and the COVID-19 Pandemic: Evidence from Germany
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)
Inflation Target Credibility in Times of High Inflation
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.
Work in Progress
Asymmetric Inflation Target Credibility
with Dieter Nautz
Abstract: This paper analyzes more than 180,000 daily responses from German consumers collected from January 2019 to November 2023 to investigate how inflation target credibility (ITC) responds to observed deviations of inflation from the ECB’s 2% target. Using a unique and ongoing survey of German consumers designed to investigate the determinants of the time-varying credibility of the ECB’s inflation target enables us to estimate the effect of both positive and negative deviations of inflation from the ECB’s 2% target. While we control for the personal characteristics of survey respondents, our primary focus is on analyzing the time variation observed in inflation target credibility. By investigating the role of the inflationary environment and various measures of monetary policy in the perceived credibility of the inflation target, the paper aims to improve central banks' expectations management and communication of monetary policy to a heterogeneous public.