Macroeconomic stabilisation, the lower bound, and inflation: Expectations matter

Ioana Duca-Radu, Geoff Kenny, Andreas Reuter

When interest rates cannot go any lower, the economy can be stabilised if consumers expect the rate of inflation to increase. Yet, the evidence for this stabilising effect has been very mixed. This column presents new evidence from a monthly survey of over 25,000 individual consumers across the euro area, showing that consumers are indeed more ready to spend if they expect inflation to be higher in the future. While generalised in the population, the stabilising effect is stronger when nominal interest rates ­are constrained at the lower bound.

Πηγή: Voxeu

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