Interventions and Inflation Expectations in an Inflation Targeting Economy

28 Pages Posted: 10 Jul 2013

See all articles by Pablo M. Pincheira

Pablo M. Pincheira

Adolfo Ibanez University - School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: May 8, 2013

Abstract

In this paper we explore the role that exchange rate interventions may play in determining inflation expectations in Chile. To that end, we consider a set of nine deciles of inflation expectations coming from the survey of professional forecasters carried out by the Central Bank of Chile. We consider two episodes of preannounced central bank interventions during the sample period 2007–2012. Our results indicate, on the one hand, that the intervention program carried out in 2008 had a significant, but relatively short-lived, impact on the distribution of inflation expectations at long horizons. On the other hand, the intervention carried out in 2011 shows no relevant impact on the distribution of inflation expectations in Chile. A daily analysis using break-even inflation rate as a proxy for inflation expectations is roughly consistent with these results. Our analysis also suggests that the interventions did have an impact on daily exchange rate returns, especially on the day after the announcements of the intervention programs.

Keywords: Exchange rates, inflation expectations, inflation targeting, forex interventions

JEL Classification: E31, E52, E58, F31

Suggested Citation

Pincheira, Pablo M., Interventions and Inflation Expectations in an Inflation Targeting Economy (May 8, 2013). Available at SSRN: https://ssrn.com/abstract=2291182 or http://dx.doi.org/10.2139/ssrn.2291182

Pablo M. Pincheira (Contact Author)

Adolfo Ibanez University - School of Business ( email )

Diagonal Las Torres 2640
Peñalolén
Santiago
Chile

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