Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/207735
Authors: 
Stevens, Arnoud
Wauters, Joris
Year of Publication: 
2018
Series/Report no.: 
NBB Working Paper No. 355
Publisher: 
National Bank of Belgium, Brussels
Abstract: 
Inflation has been persistently weak in the euro area despite the economic recovery since 2013. We investigate the sources behind this protracted low inflation by building a time-varying parameter model that jointly explains the dynamics of inflation and inflation expectations from the ECB's Survey of Professional Forecasters. We find that the inclusion of survey data strengthens the view that low inflation was mainly due to cyclical drivers. In particular, the model with survey expectations finds a more muted decline of trend inflation in recent years and a larger degree of economic slack. The impact of economic slack and import prices on inflation is found to have increased in recent years. We also find that survey expectations have become less persistent over the financial crisis period, and that including survey data improves the model's out-of-sample forecasting performance.
Subjects: 
inflation dynamics
trend inflation
survey-based inflation expectations
ECB Survey of Professional Forecasters
nonlinear state space model
Bayesian estimation
euro area
JEL: 
E31
C11
C32
Document Type: 
Working Paper

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