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How well-anchored are long-term inflation expectations?

Richhild Moessner and Elod Takats

No 869, BIS Working Papers from Bank for International Settlements

Abstract: We study the anchoring properties of long-term inflation expectations in emerging and advanced economies, as a measure of monetary policy credibility. We proxy anchoring by how short-term expectations relate to long-term inflation expectations. We find that long-term inflation expectations are less well anchored in emerging than in advanced economies for the period 1996-2019. These findings do not significantly differ between before and after the global financial crisis or away from and at the effective lower bound. We also find that persistent deviations of inflation from target affect long-term inflation expectations in advanced economies. Yet, persistent deviations do not have a stronger impact at the effective lower bound. Moreover, we find evidence for asymmetry: higher than targeted inflation has a larger impact on long-term inflation expectations.

Keywords: inflation expectations; anchoring; ZLB; monetary policy credibility (search for similar items in EconPapers)
JEL-codes: E31 E58 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2020-06
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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