Forceful or persistent : how the ECB's new inflation target affects households' inflation expectations

Mathias Hoffmann, Emanuel Moench, Lora Pavlova, and Guido Schultefrankenfeld

We study how households adjust their medium-term inflation expectations under the new ECB inflation targeting strategy. Survey respondents make little difference between the previous strategy of targeting inflation rates close to but below 2% and the new strategy with a 2% point target. Participants who learn about the inherent asymmetry in the ECB’s reaction to potential off-target inflation expect moderately higher medium-term inflation. Respondents asked to assume a scenario of current inflation running below target place a significantly higher probability on medium-term outcomes above 2%. In a scenario of inflation currently running above target, however, participants do not in turn expect an undershooting of medium-term inflation.

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Year of publication:	2024
Authors:	Hoffmann, Mathias ; Mönch, Emanuel ; Pavlova, Lora ; Schultefrankenfeld, Guido
Publisher:	Mannheim, Germany : ZEW - Leibniz Centre for European Economic Research
Subject:	Monetary Policy Strategy \| Household Inflation Expectations \| Randomized Control Trial \| Survey Data \| Inflationserwartung \| Inflation expectations \| Privater Haushalt \| Household \| Inflationssteuerung \| Inflation targeting \| Geldpolitik \| Monetary policy \| EU-Staaten \| EU countries \| Schätzung \| Estimation \| Zentralbank \| Central bank \| Eurozone \| Euro area \| Monetary policy strategy \| Household inflation expectations \| Randomized control trial \| Survey data