Article ID Journal Published Year Pages File Type
7365563 Journal of International Money and Finance 2016 16 Pages PDF
Abstract
This paper explores the dynamics of national inflation expectations within the euro area during the recent crisis. Using the European Commission's Consumer Survey, we find that the strong anchoring of area-wide inflation expectations, which is typically found in the literature, does not extend to individual member states. We also measure the effect of the crisis on national inflation expectations using sovereign bond spreads and find that increases in sovereign risk have a significant negative effect on inflation expectations. This suggests that consumers expect their country to adjust through a process of internal devaluation. In contrast, we find no evidence that tensions in the sovereign bond markets increase national inflation expectations, as one would be expect under an exit or breakup scenario.
Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
Authors
, ,