Economics, Econometrics and Finance
4 years ago

Euro area deflation risks rise with oil prices, weakening central bank credibility.

Economics Letters
Deflation risk in the euro area and central bank credibility
Gabriele Galati, Zion Gorgi, Richhild Moessner, Chen Zhou

Paper Summary

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The study looked at how likely it is for prices to fall in the euro area and how much people trust the central bank. They used a new way to see what the market thinks about the risk of prices going down. From 2010 to 2015, the chances of prices falling for a long time got a bit more affected by changes in oil prices and surprises in inflation. This suggests that the trust in keeping prices stable might have gotten a bit weaker.