Tuesday, April 5, 2011

Are Long-Run Inflation Expectations Better Anchored in the Euro Area than in the US?

This is what an article by Beechey, Johannsen and Levin published in the American Economic Journal: Macroeconomics investigates. Here is their conclusion:
This paper compares the evolution of long-run inflation expectations in the euro area and the United States, using evidence from financial markets and surveys of professional forecasters. Survey data indicate that long-run inflation expectations are reasonably well anchored in both economies but reveal substantially greater dispersion across forecasters' long-horizon projections of US inflation. Analysis of daily data on inflation swaps and nominal-indexed bond spreads, which gauge compensation for expected inflation and inflation risk, also suggests that long-run inflation expectations are more firmly anchored in the euro area than in the United States.

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