Anchoring inflation expectations in the face of oil shocks & in the proximity of ZLB: A tale of two targeters

Muhammad Ali Nasir, Daniel Balsalobre-Lorente and Toan Huynh ()

Energy Economics, 2020, vol. 86, issue C

Abstract: This paper applies a N-ARDL framework to two longstanding inflation targeting policy regimes in order to assess the relation between oil prices dynamics and inflation expectations and the further consequences created by a proximal ZLB situation. The application is based on data from January 1994 to June 2018 for New Zealand and the UK. We focus on oil price shocks as a variable of interest and this was found to have an asymmetric effect on inflation expectations. One further key finding is that the real effective exchange rate has significant impacts on inflation expectations and this is indicative of an exchange rate pass-through to inflation via an inflation expectations channel. In general, we find that inflation, exchange rate, money supply, output growth, unemployment and fiscal deficit/surplus have significant implications for inflation expectations. Inflation expectations are also influenced by their past behaviour indicating adaptive inflation expectations. This study contributes to the debate on the inflation targeting at ZLB.

Keywords: Inflation targeting; Oil shocks; Zero lower bound; Monetary policy; Money supply; Inflation; Inflation expectations; Nonlinear ARDL; NKPC (search for similar items in EconPapers)
JEL-codes: D84 E24 E31 E43 E52 E58 E61 E62 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (50)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0140988320300013
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:86:y:2020:i:c:s0140988320300013

DOI: 10.1016/j.eneco.2020.104662

Access Statistics for this article

Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant

More articles in Energy Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().