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Benjamin Böninghausen

21 September 2021
OCCASIONAL PAPER SERIES - No. 264
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Abstract
This paper summarises the findings of the Eurosystem’s Expert Group on Inflation Expectations (EGIE), which was one of the 13 work streams conducting analysis that fed into the ECB’s monetary policy strategy review. The EGIE was tasked with (i) reviewing the nature and behaviour of inflation expectations, with a focus on the degree of anchoring, and (ii) exploring the role that measures of expectations can play in forecasting inflation. While it is households’ and firms’ inflation expectations that ultimately matter in the expectations channel, data limitations have meant that in practice the focus of analysis has been on surveys of professional forecasters and on market-based indicators. Regarding the anchoring of inflation expectations, this paper considers a number of metrics: the level of inflation expectations, the responsiveness of longer-term inflation expectations to shorter-term developments, and the degree of uncertainty. Different metrics can provide conflicting signals about the scale and timing of potential unanchoring, which underscores the importance of considering all of them. Overall, however, these metrics suggest that in the period since the global financial and European debt crises, longer-term inflation expectations in the euro area have become less well anchored. Regarding the role measures of inflation expectations can play in forecasting inflation, this paper finds that they are indicative for future inflationary developments. When it comes to their predictive power, both market-based and survey-based measures are found to be more accurate than statistical benchmarks, but do not systematically outperform each other. Beyond their role as standalone forecasts, inflation expectations bring forecast gains when included in forecasting models and can also inform scenario and risk analysis in projection exercises performed using structural models. ...
JEL Code
D84 : Microeconomics→Information, Knowledge, and Uncertainty→Expectations, Speculations
E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
E37 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Forecasting and Simulation: Models and Applications
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
23 September 2019
ECONOMIC BULLETIN - ARTICLE
Economic Bulletin Issue 6, 2019
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Abstract
Data on derivatives transactions have recently become available at a number of central banks, including the ECB, and have opened up new avenues for analysis. Collected as a result of reforms of the over-the-counter (OTC) derivatives market, which were primarily designed to counter systemic risk, the data have numerous applications beyond the domain of financial stability. This article presents two such applications. It demonstrates how data gathered under the European Market Infrastructure Regulation (EMIR) can be used to better understand two types of derivatives market that are of particular importance for central bank analysis, namely the interest rate derivatives and inflation-linked swap markets. For the interest rate derivatives market, the article shows how investor expectations for interest rates may be inferred through “positioning indicators” that track how a set of “informed investors” take positions in the market in anticipation of future interest rate movements. Such quantity-based indicators can complement other, more established indicators of interest rate expectations, such as forward rates or survey-based measures. For euro area inflation-linked swap markets, the article exploits the fact that EMIR data allow a first systematic look at trading activity in these markets, which can provide valuable and timely information on investors’ inflation expectations. It highlights a number of structural features of activity in these markets and discusses their possible implications for the monitoring of market-based measures of inflation compensation.
JEL Code
G10 : Financial Economics→General Financial Markets→General
G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
25 September 2018
ECONOMIC BULLETIN - ARTICLE
Economic Bulletin Issue 6, 2018
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Abstract
Private sector inflation expectations are a key component of a broad range of indicators that the ECB considers when determining the appropriate monetary policy stance for achieving its price stability objective. Inflation expectations can not only affect inflation itself through the wage and price-setting processes, but also serve as a useful cross-check on the ECB’s and the Eurosystem’s own projections. This article focuses on market-based measures of longer-term inflation expectations, which are timely indicators derived from the prices of instruments that are traded in financial markets and linked to future inflation outcomes. It reviews recent developments in the information that can be extracted from different types of market-based indicator, starting from the period leading up to the ECB’s announcement of its expanded asset purchase programme (APP). The fall in market-based indicators of longer-term inflation expectations between 2014 and mid-2016 was consistent across major jurisdictions, possibly reflecting global concerns about weak aggregate demand and associated disinflationary pressures. Their subsequent recovery has been driven by a partial dissipation of these concerns and, in particular, a significant improvement in the euro area macroeconomic environment. The lion’s share of the movement in longer-term inflation expectations over the past few years has stemmed from the inflation risk component of these indicators, suggesting that the balance of risks to the inflation outlook has been one of the main drivers. Indeed, information extracted from the prices of inflation options implies that the risk-neutral probability of deflation increased noticeably in late 2014 and early 2015, before declining more recently.
JEL Code
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
G01 : Financial Economics→General→Financial Crises
14 July 2015
WORKING PAPER SERIES - No. 1831
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Abstract
This paper studies spillovers across sovereign debt markets in the wake of sovereign rating changes. We compile an extensive dataset covering all announcements by the three major agencies (Standard & Poor
JEL Code
G15 : Financial Economics→General Financial Markets→International Financial Markets
F36 : International Economics→International Finance→Financial Aspects of Economic Integration