How anchored are inflation expectations?

What does the evidence show?

Kose and al., in this paper, present a comprehensive analysis of the evolution and determinants of inflation expectations in emerging markets and developing countries (EMDE) as well as advanced economies. They find:

• Long-term inflation expectations have declined and become more firmly anchored in the past two decades in both advanced economies and EMDEs. Anchoring in EMDEs remains notably weaker than in advanced economies.
• Long-term inflation expectations in EMDEs are more sensitive to both global and domestic shocks than are inflation expectations in advanced economies.
• The presence of an inflation targeting regime and a rise in central bank transparency are associated with better anchoring of long-term inflation expectations in both advanced economies and EMDEs. For EMDEs, lower public debt and greater trade openness are also associated with better anchoring of expectations.

Inflation Expectations: Review and Evidence
Authors: M. Ayhan Kose, Hideaki Matsuoka, Ugo Panizza, and Dana Vorisek
From: IMF, World Bank, Graduate Institute of International and Development Studies

How did expectations become governable?

[I] argue that innovations towards inflation targeting took place in countries with non-existent or disintegrating corporatist structures and where central banks turned to finance to establish a different version of
expectation coordination. A widespread adoption of this “financialized” expectational governance has been made possible by broader processes of institutional convergence that were supported by central bankers themselves.

How expectations became governable: institutional change and the performative power of central banks
Author: Leon Wansleben
From: LSE