Inflation Expectations Anchoring Across Different Types of Agents: the Case of South Africa

Author/Editor:

Ken Miyajima ; James Yetman

Publication Date:

August 2, 2018

Electronic Access:

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management. The views in this paper also do not necessarily reflect those of the BIS.

Summary:

Inflation forecasts are modelled as monotonically diverging from an estimated long-run anchor point, or “implicit anchor”, towards actual inflation as the forecast horizon shortens. Fitting the model with forecasts by analysts, businesses and trade unions for South Africa, we find that inflation expectations have become increasingly strongly anchored. That is, the degree to which the estimated implicit anchor pins down inflation expectations at longer horizons has generally increased. Estimated inflation anchors of analysts lie within the 3–6 percent inflation target range of the central bank. However, the implicit anchors of businesses and trade unions, who are directly involved in the setting of wages and prices that drive the inflation process, have remained above the top end of the official target range. Possible explanations for these phenomena are discussed.

Series:

Working Paper No. 18/177

Subject:

English

Publication Date:

August 2, 2018

ISBN/ISSN:

9781484372043/1018-5941

Stock No:

WPIEA2018177

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

26

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