IDEAS home Printed from https://ideas.repec.org/p/zbw/bofrdp/rdp2005_025.html
   My bibliography  Save this paper

Inflation expectations and regime shifts in the euro area

Author

Listed:
  • Virén, Matti

Abstract

This paper focuses on the determination of inflation expectations. The following two questions are examined: How much do inflation expectations reflect different economic and institutional regime shifts and in which way do inflation expectations adjust to past inflation?The basic idea in the analysis is an assumption that inflation expectations do not mechanically reflect past inflation as may econometric specification de facto assume but rather they depend on the relevant economic regime.Also the adjustment of expectations to past inflation is different in different inflation regimes.The regime analysis is based on panel data from EMU/EU countries for the period 1973- 2004, while the inflation adjustment analysis mainly uses the Kalman filter technique for individual countries for the same period.Expectations (forecasts) are derived from OECD data.Empirical results strongly favour the regime-sensitivity hypothesis and provide an explanation for the poor performance of conventional estimation procedures in the context of Phillips curves.

Suggested Citation

  • Virén, Matti, 2005. "Inflation expectations and regime shifts in the euro area," Bank of Finland Research Discussion Papers 25/2005, Bank of Finland.
    • Handle: RePEc:zbw:bofrdp:rdp2005_025
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/212023/1/bof-rdp2005-025.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Feng Zhu, 2005. "The fragility of the Phillips curve: A bumpy ride in the frequency domain," BIS Working Papers 183, Bank for International Settlements.
    2. N. Gregory Mankiw & Ricardo Reis & Justin Wolfers, 2004. "Disagreement about Inflation Expectations," NBER Chapters, in: NBER Macroeconomics Annual 2003, Volume 18, pages 209-270, National Bureau of Economic Research, Inc.
    3. Linzert, Tobias, 2005. "The Unemployment Inflation Trade-Off in the Euro Area," IZA Discussion Papers 1699, Institute of Labor Economics (IZA).
    4. Rochelle Edge & Thomas Laubach, 2004. "Learning and Shifts in Long-Run Growth," Computing in Economics and Finance 2004 123, Society for Computational Economics.
    5. Barsky, Robert B., 1987. "The Fisher hypothesis and the forecastability and persistence of inflation," Journal of Monetary Economics, Elsevier, vol. 19(1), pages 3-24, January.
    6. Turnovsky, Stephen J., 1969. "A bayesian approach to the theory of expectations," Journal of Economic Theory, Elsevier, vol. 1(2), pages 220-227, August.
    7. Edge, Rochelle M. & Laubach, Thomas & Williams, John C., 2007. "Learning and shifts in long-run productivity growth," Journal of Monetary Economics, Elsevier, vol. 54(8), pages 2421-2438, November.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. repec:zbw:bofrdp:2005_025 is not listed on IDEAS
    2. Virén, Matti, 2005. "Inflation expectations and regime shifts in the euro area," Research Discussion Papers 25/2005, Bank of Finland.
    3. Matti Viren, 2006. "Inflation Expectations and Regime Shifts," Discussion Papers 5, Aboa Centre for Economics.
    4. Kevin Lansing, 2009. "Time Varying U.S. Inflation Dynamics and the New Keynesian Phillips Curve," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(2), pages 304-326, April.
    5. Richard Dion & Robert Fay, 2008. "Understanding Productivity: A Review of Recent Technical Research," Discussion Papers 08-3, Bank of Canada.
    6. Spencer D. Krane, 2006. "How professional forecasters view shocks to GDP," Working Paper Series WP-06-19, Federal Reserve Bank of Chicago.
    7. Binder, Carola Conces, 2016. "Estimation of historical inflation expectations," Explorations in Economic History, Elsevier, vol. 61(C), pages 1-31.
    8. Guido Lorenzoni, 2009. "A Theory of Demand Shocks," American Economic Review, American Economic Association, vol. 99(5), pages 2050-2084, December.
    9. David Altig & Lawrence Christiano & Martin Eichenbaum & Jesper Linde, 2011. "Firm-Specific Capital, Nominal Rigidities and the Business Cycle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(2), pages 225-247, April.
    10. Stefano Eusepi & Richard Crump & Emanuel Moench & Philippe Andrade, 2014. "Noisy Information and Fundamental Disagreement," 2014 Meeting Papers 797, Society for Economic Dynamics.
    11. Den Haan, Wouter J. & Kaltenbrunner, Georg, 2009. "Anticipated growth and business cycles in matching models," Journal of Monetary Economics, Elsevier, vol. 56(3), pages 309-327, April.
    12. Richard K. Crump & Stefano Eusepi & Emanuel Moench, 2016. "The term structure of expectations and bond yields," Staff Reports 775, Federal Reserve Bank of New York.
    13. Andrade, Philippe & Crump, Richard K. & Eusepi, Stefano & Moench, Emanuel, 2016. "Fundamental disagreement," Journal of Monetary Economics, Elsevier, vol. 83(C), pages 106-128.
    14. Peter Ireland & Scott Schuh, 2008. "Productivity and U.S. Macroeconomic Performance: Interpreting the Past and Predicting the Future with a Two-Sector Real Business Cycle Model," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(3), pages 473-492, July.
    15. Robert Murphy, 2016. "Explaining the Recent Behavior of Inflation in the United States," EcoMod2016 9550, EcoMod.
    16. Virén, Matti, 1989. "The long-run relationship between interest rates and inflation : some cross-country evidence," Research Discussion Papers 20/1989, Bank of Finland.
    17. Richard Harrison & George Kapetanios & Alasdair Scott & Jana Eklund, 2008. "Breaks in DSGE models," 2008 Meeting Papers 657, Society for Economic Dynamics.
    18. Dean Croushore, 2011. "Frontiers of Real-Time Data Analysis," Journal of Economic Literature, American Economic Association, vol. 49(1), pages 72-100, March.
    19. Riccardo DiCecio, 2004. "Comovement: it's not a puzzle," 2004 Meeting Papers 113, Society for Economic Dynamics.
    20. Murphy, Robert G., 2014. "Explaining inflation in the aftermath of the Great Recession," Journal of Macroeconomics, Elsevier, vol. 40(C), pages 228-244.
    21. Andrew Levin, 2007. "Comment on "Monetary Policy in Europe versus the United States: What Explains the Difference?"," NBER Chapters, in: International Dimensions of Monetary Policy, pages 533-545, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    inflation expectations; Kalman filter; stability;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:bofrdp:rdp2005_025. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/bofgvfi.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.