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Do Inflation Expectations Become More Anchored During a Disinflation Episode? Evidence for Euro Area Firms

Author

Listed:
  • Ursel Baumann
  • Annalisa Ferrando
  • Dimitris Georgarakos
  • Yuriy Gorodnichenko
  • Timo Reinelt

Abstract

Does a successful disinflation contribute to the anchoring of inflation expectations? We provide novel survey evidence on the dynamics of euro area firms’ inflation expectations during the disinflation episode since 2022. We show that firms’ short term inflation expectations declined steadily towards the inflation target as the disinflation progressed. However, we also document a thick tail in longer-term inflation expectations, substantial disagreement about the inflation outlook, and an increased sensitivity of longer-term inflation expectations to short-term inflation expectations. These findings suggest that it may take more time to bring inflation expectations fully in line with central bank objectives.

Suggested Citation

  • Ursel Baumann & Annalisa Ferrando & Dimitris Georgarakos & Yuriy Gorodnichenko & Timo Reinelt, 2025. "Do Inflation Expectations Become More Anchored During a Disinflation Episode? Evidence for Euro Area Firms," NBER Working Papers 33440, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:33440
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    References listed on IDEAS

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    1. Ricardo Reis, 2021. "Losing the Inflation Anchors," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 52(2 (Fall)), pages 307-379.
    2. Saten Kumar & Hassan Afrouzi & Olivier Coibion & Yuriy Gorodnichenko, 2015. "Inflation Targeting Does Not Anchor Inflation Expectations: Evidence from Firms in New Zealand," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 46(2 (Fall)), pages 151-225.
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    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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