What to expect from inflation expectations: theory, empirics and policy issues

We examine the role of inflation expectations in conditioning monetary policy, addressing three of its facets. The first concerns the channels through which inflation expectations impinge upon actual inflation, and their policy implications. The second facet regards the technical and empirical issues involved in keeping track of inflation expectations for monetary policy purposes. The final facet is an assessment of inflation expectations vis-à-vis the current upsurge of inflation, wondering whether, after being unanchored on the downside, can now become unanchored on the upside. This paper was provided by the Policy Department for Economic, Scientific and Quality of Life Policies at the request of the committee on Economic and Monetary Affairs (ECON) ahead of the Monetary Dialogue with the ECB President on.