Inflation Targeting Does Not Anchor Inflation Expectations: Evidence from Firms in New Zealand

Kumar, Saten; Afrouzi, Hassan; Coibion, Olivier; Gorodnichenko, Yuriy

doi:10.3386/w21814

Cited by 56 publications

(56 citation statements)

References 5 publications

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…5 The International Monetary Fund's World Economic Outlook has the broadest country coverage of longterm inflation projections (39 advanced economies and 154 EMDEs). 6 Kumar et al (2015) and Kabundi, Schaling, and Some (2015) document that in New Zealand and South Africa, some firms do not understand the central bank's objective function. Hence, even if professional forecasters' expectations are well anchored by inflation targeting in these countries, the same is not Several reasons for these differences have been suggested.…”

Section: Measuring Inflation Expectationsmentioning

confidence: 99%

“…under an inflation targeting regime. For example, even with an inflation targeting framework, expectations were not well anchored in New Zealand when forecasters did not understand the central bank's objective function (Kumar et al 2015). Inflation expectations in 10 advanced economies were not as well anchored during periods of persistently below-target inflation as during periods when inflation was close to target (Ehrmann 2015).…”

Section: Reis 2002)mentioning

confidence: 99%

See 1 more Smart Citation

Inflation Expectations: Review and Evidence

Kose¹,

Matsuoka²,

Panizza³

et al. 2019

View full text Add to dashboard Cite

This paper presents a comprehensive examination of the determination and evolution of inflation expectations, with a focus on emerging market and developing economies (EMDEs). The results suggest that long-term inflation expectations in EMDEs are not as well anchored as those in advanced economies, despite notable improvements over the past two decades. Indeed, in EMDEs, long-term inflation expectations are more sensitive to both domestic and global inflation shocks. However, EMDEs tend to be more successful in anchoring inflation expectations in the presence of an inflation targeting regime, high central bank transparency, strong trade integration, and a low level of public debt.Abstract. This paper presents a comprehensive examination of the determination and evolution of inflation expectations, with a focus on emerging market and developing economies (EMDEs). The results suggest that long-term inflation expectations in EMDEs are not as well anchored as those in advanced economies, despite notable improvements over the past two decades. Indeed, in EMDEs, long-term inflation expectations are more sensitive to both domestic and global inflation shocks. However, EMDEs tend to be more successful in anchoring inflation expectations in the presence of an inflation targeting regime, high central bank transparency, strong trade integration, and a low level of public debt.

show abstract

Section: Measuring Inflation Expectationsmentioning

confidence: 99%

Section: Reis 2002)mentioning

confidence: 99%

Inflation Expectations: Review and Evidence

Kose¹,

Matsuoka²,

Panizza³

et al. 2019

View full text Add to dashboard Cite

show abstract

“…Other measures include the response of (changes in) long‐term inflation expectations to (changes in) short‐term ones (Buono and Formai , Gerlach, Moessner, and Rosenblatt ), the precision around estimates of the level of inflation (Mehrotra and Yetman ), the volatility of shocks to trend inflation (Mertens ), and the closeness of average beliefs to the central bank's inflation target (Kumar et al. , Łyziak and Paloviita ).…”

mentioning

confidence: 99%

Measuring Inflation Anchoring and Uncertainty: A U.S. and Euro Area Comparison

Grishchenko

Mouabbi

Renne

2019

J of Money Credit Banking

View full text Add to dashboard Cite

We use several U.S. and euro‐area surveys of professional forecasters to estimate a dynamic factor model of inflation featuring time‐varying uncertainty. We obtain survey‐consistent distributions of future inflation at any horizon, both in the U.S. and the euro area. Equipped with this model, we propose a novel measure of the anchoring of inflation expectations that accounts for inflation uncertainty. Our results suggest that following the Great Recession, inflation anchoring improved in the United States, while mild de‐anchoring occurred in the euro area. As of our sample end, both areas appear to be almost equally anchored.

show abstract

“…5 In particular, a number of recent papers empirically document the interaction between information rigidities, inflation expectations and monetary policy. Evidence based on surveys of firms (Kumar et al (2015), Coibion et al (2019) show mixed response of the effect of monetary policy on economic outcomes. With respect to households' expectations, Easaw et al (2013), Roth and Wohlfart (2019), Bachmann et al (2015), Binder (2017) and Khaw et al (2017) shows changes in information acquisition that relate to changes in behavioral choices.…”

Section: Related Literaturementioning

confidence: 99%

Rationally Inattentive Savers and Monetary Policy Changes: A Laboratory Experiment

Civelli

Deck

Tutino

2019

View full text Add to dashboard Cite

We present a model where rationally inattentive agents decide how much to save while imperfectly tracking interest rate changes. Suitable assumptions on agents' preferences and interest rate distribution allow us to derive testable theoretical predictions and their implications for monetary policy. We probe these predictions using a laboratory experiment with induced inattention that closely reflects the theoretical assumptions. We find that, empirically, the laboratory data corroborates the results of the theoretical model. In particular, we show that experimental subjects respond to changes in the interest rate policy environment with: (1) a decrease in savings when the utility gain from savings does not compensate for the cognitive cost of tracking the interest rate; (2) more informed and deliberate consumption/investment choices when the monetary authority stabilizes the economy by lowering the volatility of the policy rate, implementing a version of Delphic forward guidance; (3) a slight decrease in information processing but no behavioral changes in consumption when the monetary authority signals current monetary policy stance, implementing a version of Odyssean forward guidance; (4) a sizable decrease in investment when their perception of the outlook deteriorates. These experimental and theoretical findings agree with the empirical literature on the effect of monetary policy on households' consumption behavior in U.S. data and abroad.

show abstract

Inflation Targeting Does Not Anchor Inflation Expectations: Evidence from Firms in New Zealand

Cited by 56 publications

References 5 publications

Inflation Expectations: Review and Evidence

Inflation Expectations: Review and Evidence

Measuring Inflation Anchoring and Uncertainty: A U.S. and Euro Area Comparison

Rationally Inattentive Savers and Monetary Policy Changes: A Laboratory Experiment

Contact Info

Product

Resources

About