Advertisement

Upside Risk Factors to the Inflation Outlook and Long-Term Inflation Expectations

  • Eliphas Ndou
  • Nombulelo Gumata
Chapter
  • 346 Downloads

Abstract

This chapter explores the information content of long-term inflation expectations inferred from break-even inflation rates and the policy implications thereof. Evidence established that actual and counterfactual long-term inflation expectations are “poorly” anchored. Evidence reveals there is pass-through from positive long-term inflation expectation shock to headline CPI inflation. Long-term inflation expectations propagate the adverse inflation shocks into the real economy. Periods of heightened inflationary pressures result in elevated long-term inflation expectations. In policy terms, this suggests policy makers should adopt a policy stance that aims to break down such adverse reinforcing tendencies.

Keywords

Exchange Rate Monetary Policy Euro Area Commodity Price Inflation Expectation 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

References

  1. Bernanke, B. S. (2003). Before the money marketers of New York University, New York, New York, 3 February.Google Scholar
  2. Christensen, I., Dion, F., & Reid, C. (2004). Real return bonds, inflation expectations, and the break-even inflation rate. Bank of Canada Working Paper 2004-43.Google Scholar
  3. Christiano, L. J., & Gust, C. J. (1999). Taylor rules in a limited participation model. Working Paper Series WP-99-3, Federal Reserve Bank of Chicago.Google Scholar
  4. Cogley, T. (2005). Changing beliefs and the term structure of interest rates: Cross-equation restrictions with drifting parameters. Review of Economic Dynamics, 8, 420–451.CrossRefGoogle Scholar
  5. Honkapohja, S. (2015). Monetary policies to counter the zero interest rate: An overview of research. Research Discussion Papers 18/2015, Bank of Finland.Google Scholar
  6. Hördahl, P. (2008). The inflation risk premium in the term structure of interest rates. BIS Quarterly Review, Bank for International Settlements, September.Google Scholar
  7. Leduc, S., Sill, K., & Stark, T. (2002). Self-fulfilling expectation and the inflation of the 1970s: Evidence from the Livingston Survey. Federal Reserve Bank of Philadelphia, Working Paper No. 02-13.Google Scholar
  8. Mishkin, F. S., & Schmidt-Hebbel, K. (2007). Does inflation targeting make a difference? National Bureau of Economic Research Working Paper 12876.Google Scholar

Copyright information

© The Author(s) 2017

Authors and Affiliations

  • Eliphas Ndou
    • 1
  • Nombulelo Gumata
    • 1
  1. 1.South African Reserve BankPretoriaSouth Africa

Personalised recommendations