This paper aims to examine whether inflation expectations in Germany became more persistent and adjusted asymmetrically following the recent inflation shock faced by the European Central Bank (ECB). The analysis investigates whether expectations respond symmetrically to rising and falling inflation or whether they exhibit downward stickiness during disinflation phases.
The paper combines a theoretical extension of the Barro–Gordon framework with an empirical analysis based on German monthly data from 2020 to 2026. Inflation expectation dynamics are estimated using an autoregressive distributed lag (ADL) model with interaction terms capturing disinflation phases. Robustness checks include alternative lag structures, alternative definitions of disinflation and alternative model specifications.
The empirical results indicate persistence in inflation expectations and evidence of asymmetric adjustment. Inflation expectations react strongly when inflation rises but adjust more slowly when inflation declines. The interaction effect between disinflation phases and lagged inflation remains negative across alternative specifications, supporting the interpretation of downward stickiness in inflation expectations.
The findings should be interpreted in the context of the exceptional macroeconomic environment of the 2020–2026 period, including the pandemic, the energy crisis and heightened geopolitical uncertainty. While the analysis focuses primarily on Germany, additional robustness checks using euro area survey data suggest qualitatively similar patterns.
The paper contributes to the literature by combining the concept of hysteresis in inflation expectations with the Barro–Gordon framework and by providing new empirical evidence on asymmetric expectation adjustment during the recent ECB inflation episode.
