Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. The selection and refereeing process for this paper was carried out by the Chairs of the Task Force. Papers were selected based on their quality and on the relevance of the research subject to the aim of the Task Force. The authors of the selected papers were invited to revise their paper to take into consideration feedback received during the preparatory work and the referee's and Editors' comments. Terms of use: Documents in EconStor mayThe paper is released to make the research of LIFT generally available, in preliminary form, to encourage comments and suggestions prior to final publication. The views expressed in the paper are the ones of the author(s) and do not necessarily reflect those of the ECB, the ESCB, or any of the ESCB National Central Banks.ECB Working JEL: D84, E52, E58 Keywords:Inflation expectations, anchoring, survey data, euro area, financial crisis. ECB Working Paper 1945, August 2016 2 Non-technical summaryThis paper examines the anchoring of survey-based measures of inflation expectations in the euro area. We consider inflation expectations of professional forecasters and consumers for 1999Q1-2015Q3. In the case of the professional forecasters, we use one-year ahead, two-years ahead and 4-5-years ahead inflation forecasts from the ECB Survey of Professional Forecasters (SPF), conducted every quarter. In the case of consumers, we use the European Commission Consumer survey, which provides a unique set of harmonised monthly data on 12-months ahead consumer inflation expectations across the EU economies. As the survey question is qualitative, we quantify consumer inflation expectations using the probability approach.We analyse anchoring of inflation expectations in the EMU period and pay special attention to possible changes in anchoring over the last few years, a period characterized by low inflation, increased economic uncertainty, zero lower bound (ZLB), and unconventional monetary policy measures. First, we examine the responsiveness of inflation expectations to actual inflation and the reaction of longer-term inflation expectations to shorter-term ones. Then, we analyse the anchoring of long-term inflation expectations to the ECB inflation target and extend this analysis to describe the behaviour of short-and medium-term inflation expectations. The novelty of our approach is in assessing the effectiveness of two main communication tools used by the ECB, the inflation target and the ECB inflation projections provided by the Eurosy...

Phillips curve, Expectations, Euro area, E31, C52,

Cognitive abilities help explain the large cross-sectional variation in inflation expectations at the household level. But which type of cognitive abilities are important? We find that not only quantitative abilities but also logical and verbal abilities are important to explain the accuracy and plausibility of households' inflation expectations. We discuss the channels through which different forms of cognition might shape households' abilities to forecast future macroeconomic variables. We also draw implications for the effectiveness of policies that aim to manage households' expectations.

Forecast errors for inflation decline monotonically with both verbal and quantitative IQ in a large and representative male population. Within individuals, inflation expectations and perceptions are autocorrelated only for men above the median by IQ (high-IQ men). High-IQ men's forecast revisions are consistent with the diagnostic-expectations framework, whereas anything goes for low-IQ men. Education levels, income, socioeconomic status, or financial constraints do not explain these results. Using ad-hoc tasks in a controlled environment, we investigate the channels behind these results. Low-IQ individuals' knowledge of the concept of inflation is low; they associate inflation with concrete goods and services instead of abstract economic concepts, and are less capable of forecasting mean-reverting processes. Differences in expectations formation by IQ feed into choice-only high-IQ men plan to spend more when expecting higher inflation as the consumer Euler equation prescribes. Our results have implications for heterogeneous-beliefs models of consumption, saving, and investment.

This paper examines recent changes in the cyclicality of euro area inflation. We estimate timevarying parameters for the hybrid New Keynesian Phillips curve using three alternative proxies for the output gap. Our analysis, which is based on the state-space method with Kalman filtering techniques, suggests that the slope of the euro area Phillips curve has become steeper since 2012. Thus, the current low level of inflation and persistently negative output gap increase the risk that euro area inflation will stay below the monetary policy target for an extended period.