Inflation Expectations as a Policy Tool?
This chapter is a preliminary draft unless otherwise noted. It may not have been subjected to the formal review process of the NBER. This page will be updated as the chapter is revised.
Chapter in forthcoming NBER book NBER International Seminar on Macroeconomics 2019, Kristin Forbes and Pierre-Olivier Gourinchas, organizers
We assess the prospects for central banks using inflation expectations as a policy tool for stabilization purposes. We review recent work on how expectations of agents are formed and how they affect their economic decisions. Empirical evidence suggests that inflation expectations of households and firms affect their actions but the underlying mechanisms remain unclear, especially for firms. Two additional limitations prevent policy-makers from being able to actively manage inflation expectations. First, available surveys of firms' expectations are systematically deficient, which can only be addressed through the creation of large, nationally representative surveys of firms. Second, neither households' nor firms' expectations respond much to monetary policy announcements in low-inflation environments. We provide suggestions for how monetary policy-makers could pierce this veil of inattention through new communication strategies as well as the potential pitfalls to trying to do so.This chapter is not currently available on-line.
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Document Object Identifier (DOI): https://doi.org/10.1016/j.jinteco.2020.103297This chapter first appeared as NBER working paper w24788, Inflation Expectations as a Policy Tool?, Olivier Coibion, Yuriy Gorodnichenko, Saten Kumar, Mathieu Pedemonte