Inflation targeting and the anchoring of inflation expectations in the CEE countries

Abstract

This paper studies the time evolution in the degree and level of anchoring of inflation expectations in four Central and Eastern European inflation targeting countries. The results suggest that the degree of anchoring of inflation expectations increased gradually in all countries over the last decade, while the level of implied inflation targets moved towards the official target. The extent of anchoring increased more strongly in the first years following the IT adoption and more gradually over the later period. We also find that smooth changes of the official target had a positive impact on anchoring. [Project of the Serbian Ministry of Education, Science and Technological Development, Grant no. 47028: Advancing Serbia’s Competitiveness in the Process of EU Accession]

Keywords

• inflation targeting
• monetary policy
• credibility
• time-varying parameter VAR
• mixture innovation model