Econometric Analysis on Survey-data-based Anchoring of Inflation Expectations in Chile

In this article, I conduct certain econometric estimations aiming at analysing to what extent inflation expectations from public agents are anchored to the Central Bank of Chile's inflation target. Expectations anchoring is an important feature for the monetary policy in a small-open economy under inflation targeting with a floating exchange rate. It is understood as another central bank instrument, as it promotes price stability through the ability of authorities to manage inflation expectations. I provide evidence suggesting that agents' expectations, based on survey data, are firmly anchored, because of Central Bank of Chile policy actions. Within the fully-fledged inflation targeting era—starting in 2000—three periods are detected. These are (i) the pre-Global Financial Crisis (GFC) period, (ii) the post-GFC period until mid-2015, and (iii) the low inflation period afterwards. Particularly for the last period, the anchoring effect is clearer and pronounced.