Outdated browser

You are using an outdated browser. DNB.nl works best with:

Deflation risk in the euro area and central bank credibility

Working Papers

Published: 05 April 2016

This paper investigates how the perceived risk that the euro area will experience deflation has evolved over time, and what this risk implies for the credibility of the ECB. We use a novel dataset on market participants’ perceptions of short- to long-term deflation risk implied by year-on-year options on forward inflation swaps. We investigate whether long-term inflation expectations have become de-anchored, by studying whether long-term deflation risk has been affected by changes in oil prices and by short-term deflation risk. Our analysis suggests that the anchoring properties of euro area inflation expectations have weakened, albeit in a still subtle way.
 
Keywords: Deflation, inflation expectations, monetary policy, financial crisis.
JEL classification: E31, E44, E52, E58.

Working paper no. 509.

509 - Deflation risk in the euro area and central bank credibility

596KB PDF
Download 509 - Deflation risk in the euro area and central bank credibility

Discover related articles