TY - GEN
T1 - How Should Central Banks Respond to Non-neutral Inflation Expectations?
AU - Shah, Imran H.
AU - Corrick, Ian
PY - 2016
Y1 - 2016
N2 - 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.
AB - 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.
M3 - Chapter in a published conference proceeding
T3 - Bath Economics Research Working Papers
BT - 4th International Symposium in Computational Economics and Finance (ISCEF)
T2 - 4th International Symposium in Computational Economics and Finance (ISCEF)
Y2 - 14 April 2016 through 16 April 2016
ER -