How anchored are inflation expectations in EMU countries?

Anchored inflation expectations help stabilize inflation. Previous results indicate that monetary policy has been effective in breaking the link between actual and expected inflation at the euro area level. In this paper we examine whether this is also true at the national level. We define the 'disconnect' between inflation and inflation expectations and then proceed to examine the extent to which this disconnect exists for a number of euro area countries. Our findings suggest that for some countries, their own inflation experiences still affect national inflation expectations, and certainly more by comparison to how they affect the aggregate euro area level.

Research Highlights► Inflation expectations are anchored at the EMU level. ► Country characteristics still contribute to national levels of inflation. ► Not all countries in the EMU sample examined have similarly anchored inflation expectations. ► We raise a flag of caution: managing the average level of inflation may not be sufficient for price stability.