The Time‐Varying Anchoring of Inflation Expectations in Australia

Thuy Hang Duong

Australian Economic Review, 2026, vol. 59, issue 1, 59-74

Abstract: This paper examines the anchoring of inflation expectations in Australia, an important indicator of the Reserve Bank of Australia's (RBA) credibility in the public's eyes regarding its inflation mandate. Rather than treating anchoring as a binary state, the study examines its evolution over time. The positive responsiveness of long‐term expectations held by union officials and bond investors to actual inflation suggests that the RBA is midway towards completely anchoring public expectations. Estimates from the time‐varying VAR model with stochastic volatility indicate a gradual strengthening of anchoring since 1996, reflecting growing credibility under inflation targeting. These findings highlight the importance of continued credibility gains to strengthen the expectations channel.

Date: 2026
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