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June 29, 2021

Central Bank Research Hub

Medium- vs. short-term consumer inflation expectations : evidence from a new euro area survey

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Originally published on by Bank of International Settlements . Link to original report

Using the ECB Consumer Expectations Survey, this paper investigates how consumers revise medium-term inflation expectations. We provide robust evidence of their adjustment to the current economic developments. In particular, consumers adjust medium-term inflation views in response to changes in short-term inflation expectations and, to a lesser degree, to changes in perceptions of current inflation. We find that the strong adverse Covid-19 pandemic shock contributed to an increase in consumer inflation expectations. We show that consumers who declare high trust in the ECB adjust their medium-term inflation expectations to a lesser degree than consumers with low trust. Our results increase understanding of expectations formation, which is an important issue for medium-term oriented monetary policy.

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Bank of Finland Research Discussion Papers by Ewa Stanisławska and Maritta Paloviita

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