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Inflation expectations as a policy tool?

Olivier Coibion, Yuriy Gorodnichenko, Saten Kumar and Mathieu Pedemonte

Journal of International Economics, 2020, vol. 124, issue C

Abstract: We assess the prospects for central banks using inflation expectations as a policy tool for stabilization purposes. We review recent work on how expectations of agents are formed and how they affect their economic decisions. Empirical evidence suggests that inflation expectations of households and firms affect their actions but the underlying mechanisms remain unclear, especially for firms. Two additional limitations prevent policy-makers from being able to actively manage inflation expectations. First, available surveys of firms' expectations are systematically deficient, which can only be addressed through the creation of large, nationally representative surveys of firms. Second, neither households' nor firms' expectations respond much to monetary policy announcements in low-inflation environments. We provide suggestions for how monetary policy-makers could pierce this veil of inattention through new communication strategies as well as the potential pitfalls to trying to do so.

Keywords: Survey; Inflation expectations; Firms; Managers (search for similar items in EconPapers)
JEL-codes: E31 C83 D84 (search for similar items in EconPapers)
Date: 2020
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Related works:
Chapter: Inflation Expectations as a Policy Tool? (2019)
Working Paper: Inflation Expectations as a Policy Tool? (2018) Downloads
Working Paper: Inflation Expectations as a Policy Tool? (2018) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:124:y:2020:i:c:s0022199620300167

DOI: 10.1016/j.jinteco.2020.103297

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