How Should Central Banks Respond to Non-neutral Inflation Expectations?

Imran Shah, Ian Corrick

Research output: Chapter in Book/Report/Conference proceedingConference contribution

Abstract

This paper attempts to investigate the real net effects of inflation and the consequences for monetary policy in Argentina, Iran and Venezuela, which are the three countries that have experienced the highest inflationary episodes in the last three decades. The Net Inflation Effect on Output (NIEO) is evaluated by taking the difference between expected and output-neutral inflation, which are computed from VAR estimates. For all three countries it is found that for episodes of high inflation, NIEO is significantly and increasingly positive, which implies that, during these periods, inflationary expectations exceeded output-neutral inflation, generating positive real output effects. It is also found that the monetary policy actions taken in these three countries could potentially have been better-timed to minimize the undesirable output fluctuations that followed the policies, by timing interest rate changes to coincide with a smaller magnitude of NIEO.
Original languageEnglish
Title of host publication4th International Symposium in Computational Economics and Finance (ISCEF)
Publication statusUnpublished - 2016
Event4th International Symposium in Computational Economics and Finance (ISCEF) - Paris, France
Duration: 14 Apr 201616 Apr 2016

Publication series

NameBath Economics Research Working Papers
PublisherUniversity of Bath
Volume64/17

Conference

Conference4th International Symposium in Computational Economics and Finance (ISCEF)
CountryFrance
CityParis
Period14/04/1616/04/16

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