Global inflation, inflation expectations and central banks in emerging markets

Ana Aguilar, Rafael Guerra and Berenice Martinez

No 1217, BIS Working Papers from Bank for International Settlements

Abstract: This work studies the impact of global inflation on surveyed inflation expectations of private analysts in emerging market economies (EMEs), and the role central banks can play to lessen this impact. Our study uses quarterly data for 22 EMEs from 2000–23, focusing on the mean and dispersion of forecasted inflation expectations. We find three key results. Firstly, the global inflation component can affect the mean and, to a lesser extent, the dispersion of inflation expectations. For the mean of short-term inflation expectations, this effect increased in late 2021. Secondly, while the global inflation component does matter for short-term inflation expectations, the idiosyncratic inflation component (all the inflation variation that is not explained by the global component) has a stronger influence on longer-term inflation expectations. Finally, we find that monetary policy can help reduce the transmission of global inflation to inflation expectations in both the short and long term and on the dispersion of forecasters. This underscores that EME central banks have room to shape inflation expectations, even when global factors are the main cause of inflation.

Keywords: global inflation; inflation expectations; monetary policy (search for similar items in EconPapers)
JEL-codes: E31 E37 E52 (search for similar items in EconPapers)
Date: 2024-10
New Economics Papers: this item is included in nep-ban, nep-cba and nep-mon
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