Inflation expectations and perceptions: Experimental evaluations and opportunities for central banks’ communication policy

Abstract

For most countries of the world, overcoming the economic consequences of the pandemic assumed a softening of monetary policy, which elevated inflation expectations. Their return to moderate values has become one of the key objectives of the central banks’ communication policy. The purpose of the study is to identify formulations, the use of which in the communication policy of central banks contributes to reducing inflation expectations and further bringing inflation to the target value. Methodologically, the paper relies on the postulates of behavioural and experimental economics. The method is a randomized experiment, which presupposes a comparative assessment of the results obtained in experimental and control groups. The evidence of the study comes from the survey conducted on a sample of 1,200 respondents from amongst the Ural regions’ residents during the summer of 2024. The experiment has found that targeted communications contribute to some rationalization of inflation expectations. In particular, focusing on the stated inflation goal of the Bank of Russia, as well as on the facts about its achievement in previous periods or its actual value during the communications discernibly decreases inflation expectations. The aforementioned communication messages may be used by central banks to achieve the inflation target, thus reducing inflation expectations, and, consequently, anchoring them at the level close to the target value of inflation.

Keywords

• inflation targeting
• inflation expectations
• perceived inflation
• behavioural economics
• experimental economics
• russia