 Targeting Inflation from Below: How Do Inflation Expectations Behave?International Journal of Central Banking, 2015, vol. 11, issue 4, 213-249 Abstract: Inflation targeting (IT) had originally been introduced as a device to bring inflation down and stabilize it at low levels. Given the current environment of persistently weak inflation in many advanced economies, IT central banks must now bring inflation up to target. This paper tests to what extent inflation expectations are anchored in such circumstances, by comparing across periods when inflation is around target, (persistently) high, or (persistently) weak. It finds that under persistently low inflation, inflation expectations are not as well anchored as when inflation is around target: inflation expectations are more dependent on lagged inflation; forecasters tend to disagree more; and inflation expectations get revised down in response to lower-than-expected inflation, but do not respond to higher-than-expected inflation. This suggests that central banks should expect inflation expectations to behave differently than was the case previously, when inflation was often remarkably close to target in many advanced economies. JEL-codes: C53 E31 E52 E58 (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:ijc:ijcjou:y:2015:q:4:a:6 Access Statistics for this article International Journal of Central Banking is currently edited by Loretta J. Mester More articles in International Journal of Central Banking from International Journal of Central Banking |
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