Inflation Expectations and Inflation Uncertainty in the Eurozone: Evidence from Survey Data

Arnold, Ivo J.M.; Lemmen, Jan

doi:10.1007/s10290-008-0149-9

Cited by 24 publications

(25 citation statements)

References 8 publications

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“…In this context, the question arises of whether the economic policy of the euro area can successfully reduce the uncertainty by a similar proportion across countries. In a way this also relates to the conjecture of Arnold and Lemmen (2008) that, within the euro area, "inflation uncertainty may increase in countries that have a smaller influence on ECB policy. "…”

Section: Introductionmentioning

confidence: 85%

European Central Bank Footprints on Inflation Forecast Uncertainty

Makarova

2017

Economic Inquiry

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The finding of the paper shows the relative effectiveness of the “one size fits all” policy of the European Central Bank. The paper provides strong evidence in favor of this by testing whether the monetary policy effects (footprints) found in inflation uncertainty converge to a common level. These footprints are measured as the fraction of the estimated policy‐induced reduction in this uncertainty. The testing was conducted by applying a bootstrap‐type test in a regression of the rate of growth of these fractions on their initial values, computed for 16 euro area countries. (JEL C33, E52, E58)

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Section: Introductionmentioning

confidence: 85%

European Central Bank Footprints on Inflation Forecast Uncertainty

Makarova

2017

Economic Inquiry

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“…Evidence from empirical research reported so far remains mixed. On the one hand, Arnold and Lemmen (2006) found stronger dependence of inflation expectations on country-specific past inflation rates than euro-area inflation target. On the other hand, Hofmann and Remsperger (2005) find that other countries' real interest rates may matter directly for one state's output gap and von Hagen and Hofmann (2004) find a significant role of the EMU-wide (and not country-specific) ex post real interest rate in countries' backward-looking IS curves.…”

Section: Real Interest Rate Channelmentioning

confidence: 92%

Macroeconomic Adjustment and Heterogeneity in the Euro Area

Torój

2009

SSRN Journal

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In this paper, we revisit the subject of country-level macroeconomic adjustment in the euro area in the absence of autonomous monetary and exchange rate policy. We discuss how the real interest rate mechanism and the competitiveness (real exchange rate) channel interact with various aspects of countries' heterogeneity. Our stylized New Keynesian model of a structurally heterogenous monetary union comprises country-specific empirical hybrid IS and Phillips curves and common Taylor rule. It extends the standard closed-economy specification and replicates both effects in question. Cross-country long-term differentials in steady-state inflation (due to structural factors, such as Balassa-Samuelson effect) and natural interest rate do not rule out the existence of an equilibrium, as long as they are offset by additional price level differentials. We establish a link between the smoothness of the adjustment process and various aspects of countries' heterogeneity, such as expectation formation mechanisms, inflation persistence, market flexibility, as well as output gap sensitivity to real interest rate, real exchange rate and foreign demand. Our GMM estimates of the IS and Phillips curves imply that the competitiveness channel is effectively at work in EMU 12 in the sense of real exchange rate influence on the output gap, but market flexibility necessary to trigger shifts in REER remains below the standards in New Keynesian empirical literature. They also suggest that the risk of the real interest rate effect is reduced by low output gap responsiveness to country-specific real interest rates, coupled with mostly significant responses to real exchange rates, and mainly results from intrinsic inflation persistence. Our model does not confirm the existence of a premium when foreign markets are more rigid in relative terms. Promoting market flexibility, combating intrinsic inflation persistence, anchoring inflation expectations and intensifying trade linkages remain the main challenges for policymakers willing to minimize the procyclical effects of real interest rate and maximize the efficiency of competitiveness channel as a substitute for autonomous monetary policy.

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“…The most frequently used method is the Carlson -Parkin (CP) approach (see e.g. Carlson and Parkin (1975) for a detailed description or Forsells and Kenny (2004) and Arnold and Lemmen (2008) for relatively recent empirical applications). 2 However, the CP method is being subjected to strong criticism due to its heavy reliance on unrealistic and over-restrictive theoretical assumptions.…”

Section: Consumer Survey Methodologymentioning

confidence: 99%

“…However, Mankiw et al (2003) disqualify this kind of indicator as a reasonable proxy for inflation uncertainty, regarding it as a mere measure of disagreement between forecasters. In order to circumvent this shortcoming, the approach suggested by Arnold and Lemmen (2008) is followed here.…”

Section: Consumer Survey Methodologymentioning

confidence: 99%

“…CS are commonly used to quantify inflation uncertainty in terms of inflation forecasts' dispersion, which has been heavily criticised as merely a measure of inflation disagreement (Mankiw et al 2003, Bowles et al 2010. To circumvent this deficiency we express inflation uncertainty as an indicator of inflation expectations' volatility (as suggested by Arnold and Lemmen (2008).…”

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confidence: 99%

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