BoE study suggests policy can affect inflation expectations
However, many households still have theoretically “wrong” idea about effects of tightening
Monetary policy can have a role in shaping inflation expectations, a new Bank of England (BoE) study suggests – but central banks’ communication strategies may need to change.
The working paper by BoE economist Natalie Burr examines data on UK inflation expectations between June 1997, when the government gave the BoE independence to set interest rates, and December 2019. It finds that a tightening of policy caused expectations to fall in aggregate. Expectations also fell among firms and across
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