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Euro area inflation expectations

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  • Ricardo Gimeno
  • Eva Ortega

Abstract

This study explores the recent dynamics of inflation expectations for the main euro area countries. It uses daily financial data for the main euro area countries over the past 15 years with a wide range of time horizons. The estimation of a model of the term structure of inflation expectations using these data allows the common part to be separated from the countryspecific part. It is found that, for the various time horizons and countries, the bulk of expected inflation is common to the whole euro area. The weight of country-specific factors is low, being most significant for the shorter term. For time horizons between five and ten years, the estimated inflation expectations showed a downward trend from 2012, which has reversed in the last two years owing to the application of a broad set of unconventional monetary policy measures in the euro area since mid-2014. Still, in the past year, medium-term inflation expectations have held below 2%, around 1.7% on average, clearly lower than in the period before the economic crisis.

Suggested Citation

  • Ricardo Gimeno & Eva Ortega, 2018. "Euro area inflation expectations," Economic Bulletin, Banco de España, issue MAR.
    • Handle: RePEc:bde:journl:y:2018:i:3:d:aa:n:5
    Note: Analytical Articles
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