Mario Draghi pulled off a political triumph on QE, coming in with a program that is bigger and more open-ended than anyone expected. The goal was to jolt expectations, to convince markets that there has been a fundamental shift toward aggressiveness. And markets certainly moved in the right direction. But how much was achieved? Inquiring minds want to know — or at least I do. So I’ve done some back-of-the-envelope calculations on the question of how much Draghi managed to move inflation expectations.

A side note: many people seem to use the 5-year-5-year forward swap rate here, but that seems very strange to me; it’s a measure of expected inflation, not from 2015 to 2020, but of 2020 to 2025. Why, exactly, should that be the measure? It’s much more natural, I’d think, to just use 5-year or 10-year break-evens, the spread between index and nominal bonds.

So look at German yields (Germany because it’s presumably the safe asset of Europe). A week ago German index bonds coming due in 5 years yielded -.31, while ordinary bonds of the same maturity offered a slightly negative yield; so the implied prediction of inflation was about 0.3 percent over the next five years. Now the index yield is -.46, while nominal yield is slightly positive, implying expected inflation of around 0.5 percent. So that’s a 0.2 percentage point rise in the expected 5-year inflation rate.

At a 10-year horizon it seems to be a bit less but in the same ballpark, maybe 0.15 percentage points.

We can also estimate the effect indirectly, via the exchange rate. Not much change in the US-Germany interest differential, but around a 2 percent fall in the euro; as I explained in the linked post, this is consistent with a roughly 0.2 percent rise in expected euro area inflation over the next decade.

So, Draghi’s big announcement seems to have raised expected European inflation by one-fifth of a percentage point. That’s actually a lot to accomplish under the circumstances, but it’s also far too little to turn Europe around on its own. Great work, Mr. Draghi, but it’s going to take a lot more than this to save the day.