2019/02. Three Dimensions of Central Bank Credibility and Inferential Expectations: The Euro Zone
Timo Henckel, Australian National University & Centre for Applied Macroeconomic Analysis; Gordon D. Menzies, University of Technology Sydney; Peter Moffat, University of East Anglia; Daniel J. Zizzo, University of Queensland & Centre for Applied Macroeconomic Analysis
Date of publication: 7th February 2019
Working paper number: 02
We use the behavior of inflation among Eurozone countries to provide information about the degree of credibility of the European Central Bank (ECB) since 2008. We define credibility along three dimensions-official target credibility, cohesion credibility and anchoring credibility - and show in a new econometric framework that the latter has deteriorated in recent history; that is, price setters are less likely to rely on the ECB target when forming inflation expectations.