The de-anchoring of long-term inflation expectations (the gap between inflation expectations and the central bank's target) represents a challenge for monetary policy, since it restrains its policy space. This work, which uses data from the ECB Survey of Professional Forecasters, examines the anchoring of long-term inflation expectations in the euro area in light of the expected macroeconomic environment characterized by low growth and low inflation in the long-term.
Using both time series and panel data methods, this work shows that the level of long-term inflation expectations registered two significant declines in 2013 and 2019, moving away from the ECB's inflation aim. Empirical evidence shows that the decrease in inflation expectations has recently been associated with a progressive reduction in the long-term expectations of real GDP growth.
