Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/308802 
Year of Publication: 
2025
Series/Report no.: 
Discussion Paper No. 2025/1
Publisher: 
Freie Universität Berlin, School of Business & Economics, Berlin
Abstract: 
This paper investigates the determinants of inflation target credibility (ITC) using a unique survey we designed to measure the credibility of the ECB's inflation target. Containing over 200,000 responses from German consumers collected between January 2019 and November 2024, our dataset enables us to estimate the effect of both positive and negative deviations of inflation from the 2% target on ITC. In contrast to the symmetry of the ECB's inflation target, we find that ITC is asymmetric, i.e. consumers respond significantly and plausibly signed to target deviations only when inflation is above target. When inflation is below target, however, the credibility of the inflation target cannot be improved by raising the inflation rate to close the gap.
Subjects: 
Credibility of Inflation Targets
Consumer Inflation Expectations
Expectation Formation
JEL: 
D84
E31
E52
E58
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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