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Global inflation dynamics and inflation expectations

Martin Feldkircher and Pierre Siklos ()

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: In this paper we investigate dynamics of global inflation and short-run inflation expectations. We estimate a global vector autoregressive (GVAR) model estimated using Bayesian techniques. We then explore the effect of three source of inflationary pressure that could drive up inflation expectations: domestic aggregate demand and supply shocks as well as a global increase in oil price inflation. Our results indicate that inflation expectations tend to increase as inflation accelerates. However, the effects of the demand and supply shock are for most countries only short-lived. If domestic inflation accelerates due to a global acceleration of oil price inflation, however, effects are generally more pronounced and long-lasting. This implies that to assess the link between actual inflation and inflation expectations appropriately, it is important to disentangle the underlying sources of inflationary pressure. We also examine whether the relationship between actual inflation and inflation expectations has changed since the global financial crisis. We find that the transmission between inflation and inflation expectations was largely unaffected in response to domestic demand and supply shocks, while effects of an oil price shock on inflation expectations are smaller post-crisis.

Keywords: inflation; inflation expectations; GVAR modelling; anchoring of inflation expectations (search for similar items in EconPapers)
JEL-codes: E31 E52 E58 C32 (search for similar items in EconPapers)
Pages: 61 pages
Date: 2018-11
New Economics Papers: this item is included in nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2018-60

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