Assessing Inflation Expectations Anchoring for Heterogeneous Agents: Analysts, Businesses and Trade Unions

25 Pages Posted: 7 Jan 2019

See all articles by Ken Miyajima

Ken Miyajima

Bank for International Settlements (BIS) - Monetary and Economic Department

James Yetman

Bank for International Settlements (BIS)

Date Written: November 29, 2018

Abstract

Forecasts of agents who are actively involved in the setting of prices and wages are less readily available than those of professional analysts, but may be more relevant for understanding inflation dynamics. Here we compare inflation expectations anchoring between analysts, businesses and trade unions for one country for which comparable forecasts are available for almost two decades: South Africa. Forecasts are modelled as monotonically diverging from an estimated long-run anchor point, or "implicit anchor", towards actual inflation as the forecast horizon shortens. We find that the estimated inflation anchors of analysts lie within the 3-6 percent inflation target range of the central bank. However, those for businesses and trade unions, which our evidence suggests may be most relevant for driving the inflation process, have remained above the top end of the official target range. Our results point to challenges for central banks seeking to gain credibility with agents whose decisions directly influence inflation.

Keywords: inflation expectations, inflation anchoring, decay function, inflation targeting

JEL Classification: E31, E58

Suggested Citation

Miyajima, Ken and Yetman, James, Assessing Inflation Expectations Anchoring for Heterogeneous Agents: Analysts, Businesses and Trade Unions (November 29, 2018). BIS Working Paper No. 759, Available at SSRN: https://ssrn.com/abstract=3302315

Ken Miyajima (Contact Author)

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

James Yetman

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

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