Global Inflation Dynamics and Inflation Expectations

61 Pages Posted: 27 Nov 2018

See all articles by Martin Feldkircher

Martin Feldkircher

Oesterreichische Nationalbank (OeNB)

Pierre L. Siklos

Wilfrid Laurier University - School of Business & Economics; Balsillie school of international affairs

Date Written: November 20, 2018

Abstract

In this paper we investigate dynamics of global inflation and short-run inflation expectations. We estimate a global vector autoregressive (GVAR) model estimated using Bayesian techniques. We then explore the effect of three source of inflationary pressure that could drive up inflation expectations: domestic aggregate demand and supply shocks as well as a global increase in oil price inflation. Our results indicate that inflation expectations tend to increase as inflation accelerates. However, the effects of the demand and supply shock are for most countries only short-lived. If domestic inflation accelerates due to a global acceleration of oil price inflation, however, effects are generally more pronounced and long-lasting. This implies that to assess the link between actual inflation and inflation expectations appropriately, it is important to disentangle the underlying sources of inflationary pressure. We also examine whether the relationship between actual inflation and inflation expectations has changed since the global financial crisis. We find that the transmission between inflation and inflation expectations was largely unaffected in response to domestic demand and supply shocks, while effects of an oil price shock on inflation expectations are smaller post-crisis.

Keywords: inflation, inflation expectations, GVAR modelling, anchoring of inflation expectations

JEL Classification: E31, E52, E58, C32

Suggested Citation

Feldkircher, Martin and Siklos, Pierre L., Global Inflation Dynamics and Inflation Expectations (November 20, 2018). CAMA Working Paper No. 60/2018. Available at SSRN: https://ssrn.com/abstract=3288189 or http://dx.doi.org/10.2139/ssrn.3288189

Martin Feldkircher

Oesterreichische Nationalbank (OeNB) ( email )

Otto-Wagner-Platz 3
1090 Vienna
Austria

Pierre L. Siklos (Contact Author)

Wilfrid Laurier University - School of Business & Economics ( email )

Department of Economics
75 University Avenue W.
Waterloo, Ontario N2L 3C5
Canada
519-884-0710 Ext.. 3491 (Phone)

HOME PAGE: http://pierrelsiklos.com

Balsillie school of international affairs ( email )

67 Erb Street West
Waterloo, ON N2L 6C2
Canada

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