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Board of Governors of the Federal Reserve System (US)
Finance and Economics Discussion Series
Measuring Inflation Anchoring and Uncertainty : A US and Euro Area Comparison
Olesya V. Grishchenko
Sarah Mouabbi
Jean-Paul Renne
Abstract

We use several US and euro-area surveys of professional forecasters to estimate a dynamic factor model of inflation featuring time-varying uncertainty. We obtain survey-consistent distributions of future inflation at any horizon, both in the US and the euro area. Equipped with this model, we propose a novel measure of the anchoring of inflation expectations that accounts for inflation uncertainty. Our results suggest that following the Great Recession, inflation anchoring improved in the US, while mild de-anchoring occurred in the euro-area. As of our sample end, both areas appear to be equally anchored.


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Olesya V. Grishchenko & Sarah Mouabbi & Jean-Paul Renne, Measuring Inflation Anchoring and Uncertainty : A US and Euro Area Comparison, Board of Governors of the Federal Reserve System (US), Finance and Economics Discussion Series 2017-102, 03 Oct 2017.
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Keywords: Anchoring of inflation expectations ; Dynamic factor model ; Inflation ; Stochastic volatility ; Surveys of professional forecasters ; Term structure of inflation expectations and inflation uncertainty
DOI: 10.17016/FEDS.2017.102
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