…maybe it is about time the ECB actually tries to ease monetary policy. If you don’t know how here is a plan – and another plan and one more. It is not really very hard.
ECB’s failure in one graph
Posted by Lars Christensen on August 7, 2014
https://marketmonetarist.com/2014/08/07/ecbs-failure-in-one-graph/
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Nick Rowe
/ August 7, 2014What does “2Y2Y B/E inflation” mean?
Lars Christensen
/ August 7, 2014Nick it market expectations for euro zone inflation in 2 years and 2 years ahead. Think of it as average inflation in 2016 and 2017 (so no base effects)
Nick Rowe
/ August 7, 2014Aha! Thanks Lars. Yep, I get your point now. Not looking good.
I saw some similar data for the US, and actually wrote a draft post on it. Here is the data: http://www.moneyandbanking.com/commentary/2014/7/31/inflation-expectations-how-credibility-pays-off
Look at the downward spike in 5 year expected inflation 2008/9.
But I couldn’t figure out if that was a correct measure of market expectations, or just an illiquidity effect of illiquid indexed bonds.
But if it really does show that expected inflation spiked down, so much for the Fed’s “credibility”!!
Lawrence H. White
/ August 7, 2014Or, backward-looking,
http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG/countries/XC?display=graph
Lars Christensen
/ August 7, 2014Yeah Larry. Exactly the same story. The ECB has consistently failed to deliver nominal stability.
johannesfritz
/ August 8, 2014Firmly anchored in which term?
This is Draghi in yesterday’s presser:
“And if we consider the HICP, excluding food and energy, we would have 0.8%, unchanged from the previous month. But having said that, there is no doubt that inflation is low and will remain low.
Inflation expectations, however, over the medium to long term, remain firmly anchored. In the short term, we observed a decline in inflation expectations because, as is quite natural, they are heavily determined on the basis of current inflation.
On a specific point that was raised by a usually accurate market observer, also if we look at five-year inflation expectations, derived from the break-even of the linkers, we would observe a 0.5% inflation expectation. This was a quite interesting point, but at least we think the calculations should be done differently. We should observe, not one issue, but the overall, the universe of issuances of linkers with that maturity. And this would show that the expectations over the five-year horizon are still anchored at 1%.
So we haven’t observed any decline on the medium- to long-term expectations. Long-term expectations remain anchored at 2%. Other expectations remain anchored at the previous levels. Short-term expectations, indeed, have declined.”
wow.
Lars Christensen
/ August 8, 2014Johannes, it is a truly stunning comment from Draghi. If the market is telling us that we have a credibilty problem then we just claim the market is wrong. Terrible – truly terrible.
johannesfritz
/ August 8, 2014I am baffled. Or they target 1% or that long-term is really far away.