Expectations' Anchoring and Inflation Persistence

Released on by Mr.Rudolfs Bems
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  • Expectations' Anchoring and Inflation Persistence Book Detail

  • Author : Mr.Rudolfs Bems
  • Release Date : 2018-12-11
  • Publisher : International Monetary Fund
  • Genre : Business & Economics
  • Pages : 31
  • ISBN 13 : 1484388844
  • File Size : 18,18 MB
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Expectations' Anchoring and Inflation Persistence by Mr.Rudolfs Bems PDF Summary

Book Description: Understanding the sources of inflation persistence is crucial for monetary policy. This paper provides an empirical assessment of the influence of inflation expectations' anchoring on the persistence of inflation. We construct a novel index of inflation expectations' anchoring using survey-based inflation forecasts for 45 economies starting in 1989. We then study the response of consumer prices to terms-of-trade shocks for countries with flexible exchange rates. We find that these shocks have a significant and persistent effect on consumer price inflation when expectations are poorly anchored. By contrast, inflation reacts by less and returns quickly to its pre-shock level when expectations are strongly anchored.

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Inflation Expectations

Inflation Expectations

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Inflation is regarded by the many as a menace that damages business and can only make life worse for households. Keeping it low depends critically on ensuring t