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Bertrand Gruss, Mrs. Sandra V Lizarazo Ruiz, and Mr. Francesco Grigoli
Anchoring of inflation expectations is of paramount importance for central banks’ ability to deliver stable inflation and minimize price dispersion. Relying on daily interest rates and inflation forecasts from major financial institutions in the United States, we calculate monetary policy surprises of individual analysts as the unexpected changes in the federal funds rate before the meetings of the Federal Reserve Board. We then assess the effect of monetary policy surprises on the dispersion of inflation expectations, a proxy for the extent of anchoring, which is based on the same analysts’ inflation projections submit-ted after the Fed meetings. With an identification strategy that hinges on a tight window around the Fed meetings, we find that monetary policy surprises lead to an increase in the dispersion of inflation expectations up to nine months after the policy meeting. We rationalize these results with a partial equilibrium model that features rational expectations and sticky information. When we allow the degree of information rigidity to depend on the realization of firm-specific shocks, the theoretical results are qualitatively consistent and quantitatively close to the empirical evidence.
Juan Angel Garcia and Sebastian Werner
Do euro area inflation expectations remain well-anchored? This paper finds that the protracted period of low (and below-target) inflation in the euro area since 2013 has weakened their anchoring. Testing their sensitivity to inflation and macroeconomic news, this paper expands existing results in two key dimensions. First, by analyzing all available (advanced) inflation releases. Second, the reactions of expectations are investigated at daily, time-varying and intraday frequency regressions to add robustness to our conclusions. Results point to a significant impact of inflation news over recent years that had not been observed before in the euro area.
Juan Angel Garcia and Sebastian Werner

assessing market reactions to news. Specifically, advance releases of inflation—the so-called flash estimates for German, Spanish and Italian inflation 2 — have been released since 2005 ahead of the euro area-wide flash estimate, the advance estimate of euro area-wide inflation, and Harmonized Index of Consumer Prices (HICP henceforth) inflation releases. Failing to account for those country flash estimates ignores the most relevant pieces of news on inflation, and may therefore cast doubts on the conclusions about the anchoring of inflation expectations. Second, we

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about RSD 6½ billion (about €50 per eligible pensioner). As indicated in the LOI (¶9), this decision will leave little scope to satisfy additional spending demands. 3. The August inflation release surprised somewhat on the upside . Inflation rose to 6.6 percent year-on-year in August, compared with 5.1 percent in July. This largely reflected increases in processed food prices, particularly of meat, dairy products, and edible oils. Assuming some persistence in food price inflation during the remainder of the year, inflation at the end of 2010 could be close to 8

Mr. Jeromin Zettelmeyer

was announced on the morning of the policy action. The timing of the Central Bank’s move came as a surprise, since the easing was decided and announced on a Friday, outside the pre-announced meeting schedule. As such, it is the only policy action during the floating period sample for which endogeneity to same-day economic information (namely, the inflation release for February) seems possible or even likely. The exceptionally large changes of the PDBC rate (Tuesday market close minus Thursday market close) and of the exchange rate and the Ch$ 30-90 rate when

Mr. Jeromin Zettelmeyer
This paper examines the reaction of the bilateral Ch$/US$ exchange rate to monetary policy actions in Chile and the United States. The approach is to regress the change in the exchange rate following a policy announcement on changes in market interest rates in response to the same announcement. U.S. monetary policy actions that raise the three-month treasury bill rate by 1 percentage point lead to depreciations of the Chilean peso by about 1.5 to 2 percent. The exchange rate also reacts to monetary policy actions in Chile, but the response appears to be smaller, and cannot be estimated with much precision on the available sample.
Bertrand Gruss, Mrs. Sandra V Lizarazo Ruiz, and Mr. Francesco Grigoli

inflation forecast π t + h | t e during (t – 1 + γ,t]—that is, after the federal funds rate announcement—for horizon t + h with h = {-ε, 3, 6, 9,12}. 4 Finally, actual inflation for period t + h , π t + h | t + h + θ r . Figure 1: Timeline of Forecasts and Data Releases It should be noted that for inflation, in the case of horizon t - ε, the analyst actually submits a backcast for the month that just went by. For all other horizons, h = {3, 6, 9,12}, the analyst submits a forecast for a future period. In all cases, the inflation release

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treasury futures markets. The pattern of markets’ response to news is consistent across different types of indicators, for example, inflation releases. Federal Open Market Committee (FOMC) interest rate actions are uniformly inducing high volatility in U.S. dollar—denominated bonds of Brazil and Mexico, with volatility spiking two to three times higher in the first 10 minutes, even though changes in the federal funds rate are perfectly predicted over the sample period and are known to be well anticipated by market participants in general ( Bernanke and Kuttner, 2005

International Monetary Fund
The fifth review of Serbia’s economic performance under the program supported by a Stand-By Arrangement (SBA) is discussed. It helps in addressing the spillovers from the global financial crisis while establishing a moderate economic recovery. An accelerated pace of structural reforms will help to strengthen medium-term growth and employment prospects, supported by the resumption of adequate capital inflows, in particular through foreign direct investment. A strong commitment to the implementation of structural reforms will strengthen medium-term growth and employment prospects.