Has inflation targeting become less credible?
Nathan Sussman () and
No 729, BIS Working Papers from Bank for International Settlements
Beginning with the global financial crisis (2008) the correlation between crude oil prices and medium-term and forward inflation expectations increased leading to fears of their un-anchoring. Using the first principal component of commodity prices as a measure for global aggregate demand, we decompose nominal oil prices to a global demand factor and remaining factors. Using a Phillips Curve framework we find a structural change after the collapse of Lehman Brothers when inflation expectations reacted more strongly to global aggregate demand conditions embedded in oil prices. Within this framework we cannot reject the hypothesis that expectations remained anchored.
Keywords: inflation targeting; inflation expectations; monetary policy; oil prices; anchoring; credibility (search for similar items in EconPapers)
JEL-codes: E52 E58 E31 E32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac and nep-mon
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Working Paper: Has Inflation Targeting Become Less Credible? Oil Prices, Global Aggregate Demand and Inflation Expectations during the Global Financial Crisis (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:bis:biswps:729
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