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Research papers on Inflation and monetary policy

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  2. Central bank independence and inflation targeting: monetary policy paradigms for the next millenium?

    Jeffrey C. Fuhrer · 1997 · New England economic review · 84 citations

    An expanding body of literature holds two truths about monetary policy to be self-evident: Effective central banks must be independent from undue political interference, and they would do well to target the rate of inflation directly. The genesis of this literature may be found in the concern about the effective use of the significant power wielded by central banks around the world, and in the response to a pivotal and turbulent period in economic history. The marked rise in the level and variability of inflation following the oil price surges of the 1970s led many to question the Fed's and other central banks' commitment to a low and stable inflation rate.> This article takes a critical loo

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  3. Exchange rate pass-through in emerging countries: Do the inflation environment, monetary policy regime and central bank behavior matter?

    Antonia López-Villavicencio, V. Mignon · 2017 · Journal of International Money and Finance · 71 citations

    In this paper, we estimate the exchange rate pass-through (ERPT) to import and consumer prices for a sample of 14 emerging countries over the 1994Q1-2015Q3 period. To this end, we augment the traditional bivariate relationship between the nominal effective exchange rate and inflation by accounting for monetary stability proxied by the inflation environment, monetary policy regime and central bank behavior. We show that both the level and volatility of inflation, as well as adopting an inflation target or the transparency of monetary policy decisions clearly reduce ERPT to consumer prices. However, uncertainty about domestic monetary policy seems less relevant in explaining the pass-through t

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  6. Inflation and economic growth: the search for a compromise for the Central Bank's monetary policy

    V. Mishchenko, S. Naumenkova, S. Mishchenko, et al. · 2018 · Banks and Bank Systems · 46 citations

    The article analyzes the influence of inflation on economic growth and substantiates the main directions of increasing the effectiveness of the central bank's anti-inflation policy. In order to determine the limit of inflation, the excess of which has a negative impact on the economic growth, the relationship is analyzed between the inflation rate and the real GDP growth rate on the basis of IMF statistics using the example of 158 countries. It was determined that in 2010–2017, in the global economy, the 6.0% inflation was the marginal value of the inflation rate, beyond which the economic growth rate declined or slowed down. Given the inverse relationship between the inflation rate and the

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  7. Inflation, oil price volatility and monetary policy

    Paúl Castillo, Carlos Montoro, Vicente Tuesta · 2020 · Journal of Macroeconomics · 41 citations

    In a fully micro-founded New Keynesian framework, we characterize analytically the relation between average inflation and oil price volatility by solving the rational expectations equilibrium of the model up to second order of accuracy. Higher oil price volatility induces higher levels of average inflation. We also show that when oil has low substitutability and the central bank responds to output fluctuations, oil price volatility matters for the level of average inflation. The model shows that when oil price volatility increases, average inflation increases whereas average output falls: this implies a trade-off also between average inflation and that of output. The analytical solution furt

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  8. Monetary policy & anchored expectations—An endogenous gain learning model

    Laura Gáti · 2023 · Journal of Monetary Economics · 40 citations

    This paper analyzes monetary policy in a model with a potential unanchoring of inflation expectations. The degree of unanchoring is given by how sensitively the public’s long-run inflation expectations respond to inflation surprises. I find that optimal policy moves the interest rate aggressively when expectations unanchor, allowing the central bank to accommodate inflation fluctuations when expectations are well-anchored. Furthermore, I estimate the model-implied relationship that determines the extent of unanchoring. The data suggest that the expectations process is nonlinear and asymmetric: expectations respond more sensitively to large or downside surprises than to smaller or upside ones

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  9. Monetary Policy in Turkey after Central Bank Independence

    Refet S. Gürkaynak, Zeynep Kantur, M. Taş, et al. · 2015 · SSRN Electronic Journal · 32 citations

    We present an accessible narrative of the Turkish economy since its great 2001 crisis. We broadly survey economic developments and pay particular attention to monetary policy. The data suggests that the Central Bank of Turkey was a strong inflation targeter early in this period but began to pay less attention to inflation after 2009. Loss of the strong nominal anchor is visible in the break we estimate in Taylor-type rules as well as in asset prices. We also argue that recent discrete jumps in Turkish asset prices, especially the exchange value of the lira, are due more to domestic factors. In the post-2009 period the Central Bank was able to stabilize expectations and asset prices when it c

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  10. Central Bank Credibility, Independence, and Monetary Policy

    Abdelkader Aguir · 2018 · Journal of Central Banking Theory and Practice · 31 citations

    Abstract The main motives behind the adoption of an inflation targeting regime largely relate to the notion of credibility, transparency of monetary policy and the autonomy of the central bank, which explicitly undertakes to achieve a certain inflation target. This paper examines the effects of inflation targeting in emerging economies in relation to the degree of independence of the central bank and the credibility of monetary policy. We find effects in emerging economies with little central bank independence, so our findings suggest that the central bank’s credibility, transparency and independence is a prerequisite for emerging economies to experience a decline in inflation following the

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  11. Should a central bank react to food inflation? Evidence from an estimated model for Chile

    William Ginn, Marc Pourroy · 2020 · Economic Modelling · 31 citations

    Abstract We examine whether food price shocks are a major source of macroeconomic fluctuations. We estimate a small open economy DSGE model using an alternative Taylor rule applied to Chilean data. The empirical evidence suggests that food inflation played a non-trivial role in shaping Chile's de facto monetary policy actions. Consistent with its commitment to price stability, the central bank increases the policy rate in reaction to food inflation. Despite an immediate monetary policy reaction to a food price shock, the policy rate gradually tapers off. This is due to a second-round effect on non-food inflation propagated by the food price shock. A main finding is that monetary policy that

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  12. How transparent about its inflation target should a central bank be?

    Isabelle L. Salle, Marc-Alexandre Sénégas, Murat Yıldızoğlu · 2019 · Journal of Evolutionary Economics · 30 citations

    Using an agent-based model, this paper revisits the merits for a central bank of announcing its inflation target. The model preserves the main transmission channels of monetary policy used in stochastic dynamic general equilibrium models– namely the consumption and the expectation channels, while allowing for agents’ heterogeneity in both expectations and behavior. We find that, in a rather stable environment such as the Great Moderation period, announcing the target allows for the emergence of a loop between credibility and success: if the target is credible, inflation expectations remain anchored at the target, which helps stabilize inflation, and, in turn, reinforces the central bank’s cr

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  13. Monetary policy, de-anchoring of inflation expectations, and the “new normal”

    Lucio Gobbi, Ronny Mazzocchi, R. Tamborini · 2019 · Journal of Macroeconomics · 29 citations

    Abstract Persistently low inflation rates, followed by declining inflation expectations, in advanced economies after the Great Recession have raised the question whether central banks are still able to credibly anchor inflation to their medium-term targets. The purpose of this paper is twofold. First, we investigate why agents’ expectations that over the business cycle inflation will remain in line with the target begin to falter. Our hypothesis is that agents form expectations in terms of their probabilistic belief that the economy may switch from a normal to a depression state (permanently low output and inflation), which is updated upon observing the actual state of the economy. Second, w

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  15. Monetary Policy Communication: Perspectives from Former Policy Makers at the ECB

    Michael Ehrmann, Sarah Holton, Danielle Kedan, et al. · 2023 · SSRN Electronic Journal · 25 citations

    This paper reports the results of a survey of former members of the Governing Council of the European Central Bank, which sought their views on monetary policy communication practices, the related challenges and the road ahead. Pronounced differences across the respondent groups are rare, suggesting that there is broad consensus on the various issues. Respondents view enhancing credibility and trust as the most important objective of central bank communication. They judge communication with financial markets and experts as extremely important and adequate, but see substantial room for improvement in the communication with the general public. The central bank objective is widely seen as the m

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  17. Does Monetary Policy Credibility Help in Anchoring Inflation Expectations? Evidence from Six Inflation Targeting Emerging Economies

    Aslı Güler · 2021 · Journal of Central Banking Theory and Practice · 24 citations

    Abstract Most emerging market central banks have adopted inflation targeting as their monetary policy system. The heart of inflation targeting system is inflation expectations. The success of a central bank in achieving targets depends on to the extent to which inflation expectations are formed by the announced targets. As the credibility of the central bank increases, its ability to affect the public expectation also increases. The public adjusts its inflation expectations based on announced inflation target only in case of that they believe that the central bank has the sufficiency to reach the inflation target. Credibility enables expectation to be formed in a forward-looking way by weake

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  19. ‘Independence’ of Central Banks and the Political Economy of Monetary Policy

    J. Qanas, M. Sawyer · 2023 · Review of Political Economy · 22 citations

    ABSTRACT The notion of an ‘independent’ central bank has dominated monetary policy debates for the past three decades. The arguments for the political independence of central banks are closely related to the adoption of ‘inflation targeting’. The arguments for an independent central bank are based on the ‘credibility’ of the ‘conservative’ central bank in comparison to government decision making. The independence of a central bank has been a matter of independence from government but not independence from the grip of the ‘new consensus in macroeconomics’ nor from the interests of the banking and financial sector. That independence has also supported a lack of co-ordination between monetary a

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  20. Monetary Policy Strategies for the European Central Bank

    C. Erceg, Z. Jakab, J. Lindé · 2021 · Journal of Economic Dynamics and Control · 21 citations

    Abstract We develop a behavioral DSGE model which addresses the forward guidance puzzle. We then use the estimated model to assess if unconventional monetary policy tools such as negative interest rates, forward guidance, and asset purchases can provide efficient macroeconomic stabilization in a low nominal and real interest rate environment. While these tools boost output and inflation, the rebound from deep recession can still be painfully slow. Makeup strategies, including average inflation and price level targeting, can further support recovery and reduce downside risks, though the benefits are quite modest under behavioral expectations.

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  21. Inflation volatility, monetary policy signaling and clarity of the central bank communication

    Rodolfo Tomás da Fonseca Nicolay, Ana Jordânia de Oliveira · 2019 · Journal of Economic Studies · 17 citations

    Purpose Studies about the determinants of the clarity of central bank communication are still scarce. To the authors’ knowledge, there are no studies regarding emerging economies. The purpose of this paper is to contribute to the literature in the following aspects: to analyze the determinants of the clarity of the central bank communication in an inflation targeting emerging economy; observe the influence of inflation volatility over the clarity; and observe the effect of the monetary policy signaling over the clarity. Design/methodology/approach The work uses readability indexes to measure the clarity of central bank communication. The empirical analysis uses ordinary least squares and the

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  22. Inflation Patterns and Monetary Policy: Lessons for the European Central Bank

    Johannes M. Groeneveld · 1998 · 13 citations

    Part 1 Introduction: background a preliminary look at inflation outline. Part 2 The P-framework - theory and background: theoretical and methodological underpinnings of the P-model technical aspects appendix 2A unit roots - theory and testing strategy. Part 3 Testing the P-model for four initial ERM members: a preliminary look at the actual data the determination of the price gaps regression results concluding remarks. Part 4 Money and prices in a small EMU: the expended P-model aggregation issues the actual and equilibrium European variables technical aspects of the construction of European equilibrium variables economic distortions in Europe - theoretical and policy considerations regressi

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