Forceful or Persistent : How the ECB's New Inflation Target Affects Households' Inflation Expectations

We study how households adjust their medium-term inflation expectations under the new monetary policy strategy of the ECB. In a representative sample of 7,500 participants of the Bundesbank Online Panel Households, we find that survey respondents make little difference between the previous strategy of targeting inflation rates close to but below 2% and the new strategy with a symmetric 2% target. Yet, when informed that the ECB would tolerate a potential overshooting of inflation following prolonged negative deviations from the inflation target, households report significantly higher inflation expectations. These effects are more pronounced among individuals reporting some prior knowledge about the ECB's new inflation target and those with higher trust in the ECB's ability to achieve price stability