The Role of Financial Literacy in Anchoring Inflation Expectations: The Case of Ukraine

Andriy Tsapin and Oleksandr Faryna (oleksandr.faryna@bank.gov.ua)
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Oleksandr Faryna: National Bank of Ukraine

No 02/2024, Working Papers from National Bank of Ukraine

Abstract: Using survey data from the USAID Financial Sector Transformation Project, this paper examines whether or not financial literacy influences households' expectations about future prices and whether or not it anchors inflation expectations to the central bank's target. We find that higher financial literacy lowers average uncertainty about one-year inflation, but increases three-year inflation expectations. The results from quantile regressions confirm the asymmetric effects of financial literacy and its components on inflation. Inverse effects of financial literacy on expected inflation are at work for the upper end of the distribution (unanchored expectations), while positive effects are seen in the lower end of the distribution (anchored expectations). Our findings also suggest that financial literacy significantly improves inflation perceptions and the accuracy of individuals' predictions about inflation. The conclusions from this research are beneficial and have strong policy implications for the central bank's monetary policy.

Keywords: c inflation expectations; inflation perceptions; financial literacy; monetary policy (search for similar items in EconPapers)
JEL-codes: C81 D80 D82 E31 E52 E58 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2024-03
New Economics Papers: this item is included in nep-ban, nep-cba, nep-cis, nep-fle, nep-mon and nep-tra
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