Financial Market Participants’ Inflation Expectations: Measurement, Interpretation, and Anchoring

Abstract

An approach to developing a single measure of inflation expectations based on various sets of bonds using a state-space model is proposed. The study examines the features of the obtained measure, discussing the time-varying horizon problem, limitations of the measure, and conditions for its correct interpretation. Using a Bayesian approach with the No-U-Turn Sampler (NUTS), we estimate the long-term anchor for financial market participants’ inflation expectations.