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Forceful or persistent: How the ECB's new inflation target affects households' inflation expectations

Author

Listed:
  • Hoffmann, Mathias
  • Mönch, Emanuel
  • Pavlova, Lora
  • Schultefrankenfeld, Guido

Abstract

We study how households adjust their medium-term inflation expectations under the new ECB inflation targeting strategy. Survey respondents make little difference between the previous strategy of targeting inflation rates close to but below 2% and the new strategy with a 2% point target. Participants who learn about the inherent asymmetry in the ECB's reaction to potential off-target inflation expect moderately higher medium-term inflation. Respondents asked to assume a scenario of current inflation running below target place a significantly higher probability on medium-term outcomes above 2%. In a scenario of inflation currently running above target, however, participants do not in turn expect an undershooting of medium-term inflation.

Suggested Citation

  • Hoffmann, Mathias & Mönch, Emanuel & Pavlova, Lora & Schultefrankenfeld, Guido, 2024. "Forceful or persistent: How the ECB's new inflation target affects households' inflation expectations," ZEW Discussion Papers 24-082, ZEW - Leibniz Centre for European Economic Research.
    • Handle: RePEc:zbw:zewdip:312570
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    More about this item

    Keywords

    Monetary Policy Strategy; Household Inflation Expectations; Randomized Control Trial; Survey Data;
    All these keywords.

    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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