Friday, 11 September 2015

Can central banks influence inflation expectations?

If inflation expectations affect future inflation, can central banks control inflation through it?

A Bloomberg report suggests not.

A new paper, based on a survey of company managers in New Zealand, suggests central bankers may have much less control over inflation expectations than they'd like to believe, mostly because the public just isn't listening.

The "absence of even basic knowledge about the central bank of New Zealand on the part of business leaders suggests that monetary policies designed to operate through changes in the public’s expectations, as induced primarily via communications policies, are unlikely to be very successful," writes Saten Kumar, from Auckland University of Technology, and co-authors in a paper being presented Thursday at the Brookings Institution in Washington.

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