Rue de la Banque no. 33: Economic policy uncertainty and inflation expectations

This Rue de la Banque explores the dynamic relationship between uncertainty concerning economic policy and inflation expectations, for the US and the euro area, during the period 1999-2012. We find that, in response to an increase in policy uncertainty, economic activity contracts and short-term inflation expectations fall. Moreover, our results suggest that during this period, policy uncertainty posed risks to the anchoring of long-term inflation expectations.