Working Paper: NBER ID: w21814
Authors: Saten Kumar; Hassan Afrouzi; Olivier Coibion; Yuriy Gorodnichenko
Abstract: We study the (lack of) anchoring of inflation expectations in New Zealand using a new survey of firms. Managers of these firms display little anchoring of inflation expectations, despite twenty-five years of inflation targeting by the Reserve Bank of New Zealand, a fact which we document along a number of dimensions. Managers are unaware of the identities of central bankers as well as central banks’ objectives, and are generally poorly informed about recent inflation dynamics. Their forecasts of future inflation reflect high levels of uncertainty and are extremely dispersed as well as volatile at both short and long-run horizons. Similar results can be found in the U.S. using currently available surveys as shown in Binder (2015).
Keywords: Inflation Expectations; Monetary Policy; Inflation Targeting
JEL Codes: E3; E4; E5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Inflation targeting by the Reserve Bank of New Zealand (RBNZ) (E52) | inflation expectations among firm managers (E31) |
| Limited knowledge of the RBNZ's objectives (E61) | Unanchored inflation expectations (E31) |
| Personal shopping experience (L81) | Inflation expectations (E31) |
| Differences in firm characteristics (L25) | Managers' knowledge of monetary policy (E52) |
| Managers' knowledge of monetary policy (E52) | Inflation expectations (E31) |