Anchoring of Consumers’ Inflation Expectations: Evidence from Microdata

In this paper we explore the degree of anchoring of consumers' long-run inflation expectations. If expectations are firmly anchored, short- and long-run expectations should show no comovement in response to transitory shocks. Utilizing the University of Michigan Survey of Consumer's rotating panel microstructure, we can identify changes in inflation expectations of individual consumers over time. Our results indicate that long-run inflation expectations became more anchored over the last decades. While the degree of comovement fell significantly after 1996, the probability of a joint adjustment stayed constant. Regarding the possible determinants, we find that consumers' rising interest rate expectations and perceived news on the monetary policy stance have a detrimental effect on the anchoring of long-run expectations. This effect is no longer present in the post-1996 period. Notably, a positive effect of perceived news on government debt on the degree of comovement emerges after 1996, alluding to a potentially problematic link between fiscal and monetary policy

Cross-country spillovers of national financial markets and the effectiveness of ECB policies during the euro-area crisis

Abstract We investigate spillover effects between sovereign ratings and sovereign spreads for five euro-area countries—Greece, Ireland, Italy, Portugal, and Spain—using monthly data over the period of January 2000 through June 2019. We extend previous work in two ways. First, using spatial estimation, we model and quantify the spillover effects on ratings and spreads among countries. Secondly, we assess the effectiveness of European Central Bank (ECB) policies on spreads and ratings. We find significant feedback effects among countries. Consistent with the view that forward-looking agents typically respond to credible announcements right away, our results suggest that then-ECB President Draghi’s July 2012 speech was pivotal, and was supported by the ECB’s January 2015 announcement that it would undertake asset purchases.</jats:p

Cross-Country Spillovers of National Financial Markets and the effectiveness of ECB Policies during the Euro-Area Crises: The view from the south

This paper investigates spillover effects between sovereign ratings and sovereign spreads for five euro-area countries --Greece, Ireland, Italy, Portugal and Spain --using monthly data over the period January 2000 through June 2019. We extend previous work in two ways. First, using spatial estimation, we model and quantify the spillover effects on ratings and spreads among countries. Second, we assess the effectiveness of ECB policies on spreads and ratings. We find significant feedback effects among countries and significant effects of ECB policies