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Forceful Or Persistent

How the Ecbs New Inflation Target Affects Households' Inflation Expectations

by Mathias Hoffmann, Emanuel Moench, Lora Pavlova, Guido Schultefrankenfeld ยท 2023

ISBN: 3957299586 9783957299581

Category: Unavailable

Page count: 30

We study how households adjust their medium-term inflation expectations under the new monetary policy strategy of the ECB. In a representative sample of 7,500 participants of the Bundesbank Online Panel Households, we find that survey respondents make little difference between the previous strategy of targeting inflation rates close to but below 2% and the new strategy with a symmetric 2% target. Yet, when informed that the ECB would tolerate a potential overshooting of inflation following prolonged negative deviations from the inflation target, households report significantly higher inflation expectations. These effects are more pronounced among individuals reporting some prior knowledge about the ECB's new inflation target and those with higher trust in the ECB's ability to achieve price stability.