Advertisement

Does an Unexpected Reduction in Economic Policy Uncertainty Impact Inflation Expectations?

  • Eliphas Ndou
  • Thabo Mokoena
Chapter

Abstract

Evidence indicates that an unexpected reduction in the economic policy uncertainty lowers inflation expectations. We perform a counterfactual analysis to determine what would have happened to inflation expectations when the exchange rate, economic growth and consumer price inflation channels are shut off in transmitting unexpected reduction in economic policy uncertainty. The actual inflation expectations decline more than the counterfactual reaction. This suggests that an exchange rate appreciation and reduction in the consumer price inflation, following an unexpected reduction in the economic policy uncertainty, lead to further reduction in the inflation expectations. This suggests that an unexpected reduction in the economic policy uncertainty directly lowers inflation expectations and may lead to anchoring of inflation expectations.

References

  1. Baker, S. R., Bloom, N., & Davis, S. J. (2015). Measuring economic policy uncertainty (NBER Working Paper 21633).Google Scholar
  2. Ghosh, T., Sahu, S., & Chattopadhyay, S. (2017). Household inflation expectations in India: Role of economic policy uncertainty and global financial uncertainty spill-over (WP-2017-007). Mumbai: Indira Gandhi Institute of Development Research.Google Scholar
  3. Istrefi, K., & Piloiu, A. (2014). Economic policy uncertainty and inflation expectations (Document No. 51.1).Google Scholar

Copyright information

© The Author(s) 2019

Authors and Affiliations

  • Eliphas Ndou
    • 1
    • 3
    • 4
  • Thabo Mokoena
    • 2
  1. 1.Economic Research DepartmentSouth African Reserve BankPretoriaSouth Africa
  2. 2.Department of Economic, Small Business Development, Tourism and Environmental AffairsFree State Provincial GovernmentBloemfonteinSouth Africa
  3. 3.School of Economic and Business SciencesUniversity of the WitwatersrandJohannesburgSouth Africa
  4. 4.Wits Plus, Centre for Part-Time StudiesUniversity of the WitwatersrandJohannesburgSouth Africa

Personalised recommendations