Working Paper: CEPR ID: DP13601
Authors: Ayhan Kose; Hideaki Matsuoka; Ugo Panizza; Dana Vorisek
Abstract: This paper presents a comprehensive examination of the determination and evolution of inflation expectations, with a focus on emerging market and developing economies (EMDEs). The results suggest that long-term inflation expectations in EMDEs are not as well anchored as those in advanced economies, despite notable improvements over the past two decades. Indeed, in EMDEs, long-term inflation expectations are more sensitive to both domestic and global inflation shocks. However, EMDEs tend to be more successful in anchoring inflation expectations in the presence of an inflation targeting regime, high central bank transparency, strong trade integration, and a low level of public debt.
Keywords: inflation; inflation expectations; monetary policy; emerging markets; developing economies
JEL Codes: E31; E37; E40; E50
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| long-term inflation expectations in EMDEs (E31) | weaker anchoring of inflation expectations (E31) |
| domestic and global shocks (F69) | sensitivity of inflation expectations in EMDEs (E31) |
| inflation targeting regime (E63) | better anchoring of inflation expectations in EMDEs (E31) |
| high central bank transparency (E58) | better anchoring of inflation expectations in EMDEs (E31) |
| strong trade integration (F15) | better anchoring of inflation expectations in EMDEs (E31) |
| low public debt (H69) | better anchoring of inflation expectations in EMDEs (E31) |
| institutional factors (D02) | sensitivity of inflation expectations to shocks (E31) |