Anchoring Inflation Expectations: Evidence from Latin America during the Post-COVID Stress Test
Departmental Papers, May 26, 2026
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- Anchoring Inflation Expectations: Evidence from Latin America during the Post-COVID Stress Test
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Bibliographic details
- Authors: Philip Barrett, Federico Duenas, Christopher Evans, Eric Huang, Gonzalo Huertas, Tannous Kass-Hanna
- Published: May 26, 2026
- Series: Departmental Papers
- DOI: https://doi.org/10.5089/9798229041058.087
Overview and publication metadata
- Title: Anchoring Inflation Expectations: Evidence from Latin America during the Post-COVID Stress Test
- Authors: Philip Barrett, Federico Duenas, Christopher Evans, Eric Huang, Gonzalo Huertas, Tannous Kass-Hanna
- Publication date: May 26, 2026
- Series: Departmental Paper No 2026/007
- Volume: 2026; Issue: 007; Pages: 46
- DOI: https://doi.org/10.5089/9798229041058.087
- ISBN: 9798229041058
- ISSN: 2616-5333
- Stock No: AIEELAEA
Key findings
- Monetary frameworks—many established around the turn of the century—generally performed well during the post-COVID inflation surge, with long-run beliefs moving little despite large shocks.
- Over the last 20 years, both tails of the expectations distribution have converged toward targets, though an upside skew persists.
- Cross-sectional patterns are consistent with personally credible policymakers operating within frameworks subject to institutional constraints.
- Using new data on anchoring:
- Stronger anchoring mitigates the inflationary impact of external shocks.
- Effects on monetary transmission are mixed but consistent with theory.
- Credibility evolves asymmetrically:
- Hawkish monetary policy surprises deliver modest improvements in anchoring.
- Dovish shocks erode anchoring more rapidly.
- Narrative case studies show that steps toward inflation targeting can succeed in anchoring expectations even in crises, provided institutional and political support remains strong.
Methodology and data notes
- Introduces new data on anchoring to measure how anchoring strength interacts with external shocks and transmission.
- Employs cross-sectional analysis across Latin American countries to infer relationships between policymakers’ personal credibility and institutional constraints.
- Uses narrative case studies to illustrate mechanisms by which inflation targeting steps affected expectations during crises.
Policy implications and recommendations
- Strengthen institutional and political support for monetary frameworks to preserve anchoring during large shocks.
- Recognize and address asymmetric credibility dynamics: prioritize measures that prevent dovish shocks from rapidly eroding anchoring.
- Leverage institutional design and clear communications to enhance personal credibility of policymakers within monetary frameworks.
- Consider the role of anchoring strength when assessing the likely inflationary impact of external shocks and calibrating policy responses.
Subject and keywords
- Subject: Consumer price indexes, Exchange rate arrangements, Exchange rates, Foreign exchange, Inflation, Inflation targeting, Monetary policy, Prices
- Keywords: Anchoring, Beliefs, Caribbean, Central America, Consumer price indexes, Exchange rate arrangements, Exchange rates, Expectations, Forecasts, IMF Library, Inflation, inflation expectation, inflation in Latin America, Inflation targeting, Latin America, measurement composition of inflation, Monetary Policy, Policy conduct, South America, Western Hemisphere
Source: Departmental Paper No 2026/007, "Anchoring Inflation Expectations: Evidence from Latin America during the Post-COVID Stress Test", May 26, 2026.
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- Anchoring Inflation Expectations