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Credibility of the ECB’s Inflation Target in Corona times: Evidence from an Online Survey

by Winnie Coleman and Dieter Nautz

(Free University of Berlin)

"European Central Bank's inflation target credibility decreased significantly during the pandemic."

Since 2004, the European Central Bank (ECB) has repeatedly emphasized that, in the pursuit of price stability, it aims to maintain inflation rates below, but close to, 2% over the medium term. This definition of price stability plays a central role in the communication strategy of the ECB. Both conventional and unconventional monetary policy measures of the ECB are always explained to the public with respect to the ultimate goal of steering too low inflation rates in the Euro area back to the below, but close to, 2% level. Therefore, even in times of corona, the credibility of the inflation target, as perceived by the public, is crucially important.

Direct evidence on the credibility of inflation targets is surprisingly scant. Typically, credibility is evaluated indirectly via the anchoring of survey-based inflation expectations. However, the interpretation of inflation expectations taken from standard surveys is not without problems.  For instance, the widely used Business and Consumer Survey of the European Commission asks households how they expect consumer prices to develop over the next 12 months. One of the answer categories is that prices will “stay about the same,” which should imply that the expected inflation rate is zero and, thus, clearly below the policy-intended level. However, for many consumers, the mapping between prices and inflation rates is not straightforward such that it is far from obvious to what extent a high percentage of “prices will stay about the same”–answers actually indicates the low credibility of a non-zero inflation target.  

We use a representative online survey of German citizens designed to measure the credibility of the ECB’s inflation target. Using the exact wording of the ECB’s definition of price stability, we directly measure the credibility of the inflation target on a daily basis from January 2019 onwards.[1]  We cooperate with Civey, Germany’s largest company for online surveys. Civey surveys are spread across more than 25,000 partner websites including major German online-newspapers. The Civey panel consists of more than one million German citizens, each with a user profile providing personal information including e.g. age and gender. To obtain representativeness, Civey exploits official socio-demographic data taken from the German statistical office to weigh survey responses accordingly. Since the launch of the credibility survey in January 2019, the total number of participants has increased steadily to more than 90,000 respondents.  Coleman and Nautz (2020) propose a credibility indicator that counts the proportion of answers compatible with the ECB’s inflation target.  Figure 1 demonstrates that credibility has significantly decreased, particularly during the coronavirus pandemic. Interestingly, we find that, even though inflation rates in Germany have been clearly below 2% for several years, credibility has declined mainly because Germans increasingly expect that inflation will be much higher than 2% over the medium term.  Our results suggest that online surveys could be an additional tool for monetary policy analysis that might help to evaluate and improve the communication of the central bank with the public. 



Figure 1: Credibility Indicator


Notes: Credibility indicator , where and denote the “below, but close to 2%” and “slightly above 2%” answers, respectively. The vertical lines refer to the credibility regimes identified by multiple endogenous break tests. The horizontal lines show the corresponding mean value of the indicator. End of sample 16.08.2020.

The full paper “The Credibility of the ECB’s Inflation Targetin times of Corona:New Evidence from an Online Survey” is available as a working paper.

[1] The actual survey question is stated in German and applies to the official translation used by the ECB and the Bundesbank, i.e. “unter aber nahe bei 2% in der mittleren Frist;” see

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