How to Limit the Spillover from an Inflation Surge to Inflation Expectations?

Research Area: Monetary Policy
Researcher: Lena Dräger,
Michael J. Lamla,
Damjan Pfajfar
Date: 1.7.2022

The authors study the effects of forward looking communication in an environment of rising inflation rates on German consumers‘ inflation expectations using a randomized control trial. They show that information about rising inflation increases short- and long-term inflation expectations. This initial increase in expectations can be mitigated using forward looking information about inflation. 
Among these information treatments, professional forecasters‘ projections seem to reduce inflation expectations by more than policymakers‘ characterization of inflation as a temporary phenomenon.

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