Finance and Economics Discussion Series (FEDS)
Measuring Inflation Anchoring and Uncertainty: A US and Euro Area Comparison
Olesya Grishchenko, Sarah Mouabbi, and Jean-Paul Renne
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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Keywords: anchoring of inflation expectations, dynamic factor model, inflation, stochastic volatility, surveys of professional forecasters, term structure of inflation expectations and inflation uncertainty
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