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Pass-through from short-horizon to long-horizon inflation expectations, and the anchoring of inflation expectations

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  • James Yetman

Abstract

We investigate pass-through from short-horizon to long-horizon inflation forecasts as a way to assess the anchoring of inflation expectations. We find an overall decline in the pass-through in our sample, with the share of economies having anchored expectations increasing over time. We then investigate what might explain the increase in anchoring. Inflation targeting plays an important role. Low policy rates and persistent deviations of inflation from target are correlated with a decline in expectations' pass-through. This suggests that longer-term expectations remain well anchored, despite recent low inflation out-turns in many economies.

Suggested Citation

  • James Yetman, 2020. "Pass-through from short-horizon to long-horizon inflation expectations, and the anchoring of inflation expectations," BIS Working Papers 895, Bank for International Settlements.
    • Handle: RePEc:bis:biswps:895
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    References listed on IDEAS

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    Cited by:

    1. Richhild Moessner & Előd Takáts, 2020. "How well-anchored are long-term inflation expectations?," BIS Working Papers 869, Bank for International Settlements.
    2. Stanisławska, Ewa & Paloviita, Maritta, 2021. "Medium- vs. short-term consumer inflation expectations: Evidence from a new euro area survey," Bank of Finland Research Discussion Papers 10/2021, Bank of Finland.
    3. Stanisławska, Ewa & Paloviita, Maritta, 2021. "Responsiveness of consumers' medium-term inflation expectations : evidence from a new euro area survey," Research Discussion Papers 10/2021, Bank of Finland.
    4. Baumann, Ursel & Darracq Pariès, Matthieu & Westermann, Thomas & Riggi, Marianna & Bobeica, Elena & Meyler, Aidan & Böninghausen, Benjamin & Fritzer, Friedrich & Trezzi, Riccardo & Jonckheere, Jana & , 2021. "Inflation expectations and their role in Eurosystem forecasting," Occasional Paper Series 264, European Central Bank.
    5. Ricardo Reis, 2020. "The People versus the Markets: A Parsimonious Model of Inflation Expectations," Discussion Papers 2033, Centre for Macroeconomics (CFM).
    6. repec:zbw:bofrdp:2021_010 is not listed on IDEAS
    7. Mototsugu Shintani & Naoto Soma, 2020. "The Effects of QQE on Long-run Inflation Expectations in Japan," CARF F-Series CARF-F-494, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    8. Ricardo Reis, 2020. "The People versus the Markets: A Parsimonious Model of Inflation Expectations," Discussion Papers 2033, Centre for Macroeconomics (CFM).

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    More about this item

    Keywords

    consensus forecasts; inflation expectations anchoring;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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