Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/154430
Authors: 
Natoli, Filippo
Sigalotti, Laura
Year of Publication: 
2017
Series/Report no.: 
ECB Working Paper 1997
Abstract: 
We analyze the degree of anchoring of inflation expectations in the euro area during the post-crisis period, with a focus on the time span from 2014 onwards when long-term beliefs have substantially drifted away from the policy target. Using a new estimation technique, we look at tail co-movements between short- and long-term distributions of inflation expectations, estimated from daily quotes of inflation derivatives. We find that, during 2014, average correlations between short- and long-term inflation expectations rose sharply; moreover, negative tail events impacting short-term beliefs have been increasingly channeled to long-term views, triggering both downward revisions in expectations and upward changes in uncertainty. Overall, our results signal a risk of downside de-anchoring of long-term inflation expectations.
Subjects: 
anchoring
inflation expectations
inflation swaps
inflations options
option-implied density
tail co-movement
JEL: 
C14
C58
E31
E44
G13
Document Type: 
Working Paper

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