Assessing inflation expectations has become crucial for monetary policy decisions in recent years. This paper uses the prices of financial instruments to measure the structural determinants drivers of inflation expectations in the euro area and in the United States.
The results show that in the years 2021-23, inflation expectations in the United States were constantly sustained by domestic demand, while in the euro area they mainly reflected supply factors and, only more recently, also pressures on the demand side. Furthermore, the analysis shows that monetary policy helped to contain the pick-up in expectations. This suggests that market participants continue to regard the action of central banks as credible.
Published in 2023 inEconomics Letters, v. 132, Article 111323.
