IDEAS home Printed from https://ideas.repec.org/a/adx/journl/v6y2024i1p70-80.html
   My bibliography  Save this article

Examining Inflation Expectations within Asian Economies: Application of Wavelet Quantile Analysis towards Assessing Monetary Policy Credibility

Author

Listed:
  • Khaliq Ul Rehman
  • Ghulam Ghouse

Abstract

The relevance of rational expectations has generated a renewed interest in assessing the accuracy of monetary policy declarations. Despite the enduring principles of the rational expectations theory, a remarkably dependable central bank can alleviate inflation by skillfully managing inflation expectations, thus avoiding adverse effects on employment. This paper explores the complex relationship between inflation expectations, target inflation rates, and the credibility of monetary policy, emphasizing the importance of rule compliance and transparent communication for establishing public confidence in central banks. While the estimation processes the study utilizes wavelet-based quantile regression by investigating data from 1990q1 to 2021q4, with variations across selected countries. The credibility index (CI) is employed to instrument the dependability of monetary policies. Nevertheless, the results of this study indicate that Policy credibility has a significant impact on inflation expectations in Bangladesh and Sri Lanka, underscoring the importance of clear communication and institutional reforms. Different outcomes in India and considerable effects in Pakistan underscore the necessity of customized policy measures and communication strategies to address inflation and promote economic stability in South Asia.

Suggested Citation

  • Khaliq Ul Rehman & Ghulam Ghouse, 2024. "Examining Inflation Expectations within Asian Economies: Application of Wavelet Quantile Analysis towards Assessing Monetary Policy Credibility," Journal of Economic Impact, Science Impact Publishers, vol. 6(1), pages 70-80.
    • Handle: RePEc:adx:journl:v:6:y:2024:i:1:p:70-80
    DOI: 10.52223/econimpact.2024.6109
    as

    Download full text from publisher

    File URL: https://doi.org/10.52223/econimpact.2024.6109
    Download Restriction: no
    File URL: https://libkey.io/10.52223/econimpact.2024.6109?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Refet S. Gürkaynak & Andrew T. Levin & Eric T. Swanson, 2006. "Does inflation targeting anchor long-run inflation expectations? evidence from long-term bond yields in the U.S., U.K., and Sweden," Working Paper Series 2006-09, Federal Reserve Bank of San Francisco.
    2. Yuxiang, Karl & Chen, Zhongchang, 2010. "Monetary policy credibility and inflationary expectation," Journal of Economic Psychology, Elsevier, vol. 31(4), pages 487-497, August.
    3. Tim Willems & Jeromin Zettelmeyer, 2022. "Sovereign Debt Sustainability and Central Bank Credibility," Annual Review of Financial Economics, Annual Reviews, vol. 14(1), pages 75-93, November.
    4. Ghulam Ghouse & Saud Ahmad Khan & Atiq Ur Rehman & Muhammad Ishaq Bhatti, 2021. "ARDL as an Elixir Approach to Cure for Spurious Regression in Nonstationary Time Series," Mathematics, MDPI, vol. 9(22), pages 1-15, November.
    5. Tiwari, Aviral Kumar & Dar, Arif Billah & Bhanja, Niyati, 2013. "Oil price and exchange rates: A wavelet based analysis for India," Economic Modelling, Elsevier, vol. 31(C), pages 414-422.
    6. Svensson, Lars E. O., 1997. "Inflation forecast targeting: Implementing and monitoring inflation targets," European Economic Review, Elsevier, vol. 41(6), pages 1111-1146, June.
    7. Jean-Bernard Chatelain & Kirsten Ralf, 2021. "Imperfect Credibility versus No Credibility of Optimal Monetary Policy," Revue économique, Presses de Sciences-Po, vol. 72(1), pages 43-63.
    8. Barro, Robert J. & Gordon, David B., 1983. "Rules, discretion and reputation in a model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 101-121.
    9. Johnson, David R., 2002. "The effect of inflation targeting on the behavior of expected inflation: evidence from an 11 country panel," Journal of Monetary Economics, Elsevier, vol. 49(8), pages 1521-1538, November.
    10. Mensi, Walid & Hammoudeh, Shawkat & Tiwari, Aviral Kumar, 2016. "New evidence on hedges and safe havens for Gulf stock markets using the wavelet-based quantile," Emerging Markets Review, Elsevier, vol. 28(C), pages 155-183.
    11. Atsushi Tanaka, 2021. "Central Bank Capital and Credibility: A Literature Survey," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 63(2), pages 249-262, June.
    12. Uddin, Gazi Salah & Tiwari, Aviral Kumar & Arouri, Mohamed & Teulon, Frédéric, 2013. "On the relationship between oil price and exchange rates: A wavelet analysis," Economic Modelling, Elsevier, vol. 35(C), pages 502-507.
    13. David Johnson, 2003. "The Effect of Inflation Targets on the Level of Expected Inflation in Five Countries," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 1076-1081, November.
    14. Park, Kwangyong, 2022. "The excess sensitivity of long-term interest rates and central bank credibility," Economic Modelling, Elsevier, vol. 106(C).
    15. Marcin Kolasa & Dominik Supera, 2021. "Central bank credibility, long-term yields and the effects of monetary integration," KAE Working Papers 2021-061, Warsaw School of Economics, Collegium of Economic Analysis.
    16. Beckmann, Joscha & Czudaj, Robert L., 2024. "Uncertainty Shocks and Inflation: The Role of Credibility and Expectation Anchoring," MPRA Paper 119971, University Library of Munich, Germany.
    17. Bicchal, Motilal, 2022. "Central bank credibility and its effect on stabilization," Economic Analysis and Policy, Elsevier, vol. 76(C), pages 73-94.
    18. Ghouse, Ghulam & Bhatti, Muhammad Ishaq & Aslam, Aribah & Ahmad, Nawaz, 2023. "Asymmetric spillover effects of Covid-19 on the performance of the Islamic finance industry: A wave analysis and forecasting," The Journal of Economic Asymmetries, Elsevier, vol. 27(C).
    19. de Mendonça, Helder Ferreira, 2018. "Credibility and Inflation Expectations: What we can tell from seven emerging economies?," Journal of Policy Modeling, Elsevier, vol. 40(6), pages 1165-1181.
    20. Toader Valentin & Rus Veronica, 2008. "Evaluation Of National Bank Of Romania Monetary Policy Credibility," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 2(1), pages 497-502, May.
    21. Cukierman, Alex & Meltzer, Allan H, 1986. "A Theory of Ambiguity, Credibility, and Inflation under Discretion and Asymmetric Information," Econometrica, Econometric Society, vol. 54(5), pages 1099-1128, September.
    22. Yang, Lu & Tian, Shuairu & Yang, Wei & Xu, Mingli & Hamori, Shigeyuki, 2018. "Dependence structures between Chinese stock markets and the international financial market: Evidence from a wavelet-based quantile regression approach," The North American Journal of Economics and Finance, Elsevier, vol. 45(C), pages 116-137.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Aslı Güler, 2021. "Does Monetary Policy Credibility Help in Anchoring Inflation Expectations? Evidence from Six Inflation Targeting Emerging Economies," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 10(1), pages 93-111.
    2. repec:hal:wpspec:info:hdl:2441/f4rshpf3v1umfa09lat09b1bg is not listed on IDEAS
    3. Alan S. Blinder & Michael Ehrmann & Marcel Fratzscher & Jakob De Haan & David-Jan Jansen, 2008. "Central Bank Communication and Monetary Policy: A Survey of Theory and Evidence," Journal of Economic Literature, American Economic Association, vol. 46(4), pages 910-945, December.
    4. Frederic S. Miskin & Klaus Schmidt-Hebbel, 2007. "Monetary Policy under Inflation Targeting: An Introduction," Central Banking, Analysis, and Economic Policies Book Series, in: Frederic S. Miskin & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.),Monetary Policy under Inflation Targeting, edition 1, volume 11, chapter 1, pages 001-022, Central Bank of Chile.
    5. Alan S. Blinder & Michael Ehrmann & Marcel Fratzscher & Jakob De Haan & David-Jan Jansen, 2008. "Central Bank Communication and Monetary Policy: A Survey of Theory and Evidence," Journal of Economic Literature, American Economic Association, vol. 46(4), pages 910-945, December.
    6. repec:spo:wpecon:info:hdl:2441/f4rshpf3v1umfa09lat09b1bg is not listed on IDEAS
    7. de Mendonça, Helder Ferreira, 2018. "Credibility and Inflation Expectations: What we can tell from seven emerging economies?," Journal of Policy Modeling, Elsevier, vol. 40(6), pages 1165-1181.
    8. repec:pri:cepsud:161blinder is not listed on IDEAS
    9. Jan Libich, 2006. "Inflexibility Of Inflation Targeting Revisited: Modeling The "Anchoring" Effect," CAMA Working Papers 2006-02, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    10. repec:hal:spmain:info:hdl:2441/f4rshpf3v1umfa09lat09b1bg is not listed on IDEAS
    11. Paul Hubert, 2010. "Monetary policy, imperfect information and the expectations channel [Politique monétaire,information imparfaite et canal des anticipations]," SciencePo Working papers Main tel-04095385, HAL.
    12. repec:spo:wpmain:info:hdl:2441/f4rshpf3v1umfa09lat09b1bg is not listed on IDEAS
    13. Tiwari, Aviral Kumar & Aye, Goodness C. & Gupta, Rangan & Gkillas, Konstantinos, 2020. "Gold-oil dependence dynamics and the role of geopolitical risks: Evidence from a Markov-switching time-varying copula model," Energy Economics, Elsevier, vol. 88(C).
    14. Issing Otmar & Wieland Volker, 2013. "Monetary Theory and Monetary Policy: Reflections on the Development over the last 150 Years," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 233(3), pages 423-445, June.
    15. Akhand Akhtar Hossain, 2009. "Central Banking and Monetary Policy in the Asia-Pacific," Books, Edward Elgar Publishing, number 12777, March.
    16. Barnett William A. & Jawadi Fredj & Ftiti Zied, 2020. "Causal relationships between inflation and inflation uncertainty," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 24(5), pages 1-26, December.
    17. Andrew Hallett & Jan Libich, 2012. "Explicit inflation targets and central bank independence: friends or foes?," Economic Change and Restructuring, Springer, vol. 45(4), pages 271-297, November.
    18. Svensson, Lars E.O., 2010. "Inflation Targeting," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 22, pages 1237-1302, Elsevier.
    19. Alan S. Blinder, 2008. "Talking about Monetary Policy: The Virtues (and Vices?) of Central Bank Communication," Working Papers 1048, Princeton University, Department of Economics, Center for Economic Policy Studies..
    20. Toshitaka Sekine & Yuki Teranishi, 2008. "Inflation Targeting and Monetary Policy Activism," IMES Discussion Paper Series 08-E-13, Institute for Monetary and Economic Studies, Bank of Japan.
    21. Alan S. Blinder, 2008. "Talking about Monetary Policy: The Virtues (and Vices?) of Central Bank Communication," Working Papers 1048, Princeton University, Department of Economics, Center for Economic Policy Studies..
    22. Rotondi, Zeno, 2000. "Time consistent monetary policy reconsidered: may we have a deflationary bias too?," Discussion Paper Series In Economics And Econometrics 0004, Economics Division, School of Social Sciences, University of Southampton.
    23. Helder Ferreira de Mendonça & Cristiane Nascimento de Lima, 2023. "Does central bank credibility from professional forecasters and consumers affect the interest rate and its expectations?," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 51(4), pages 895-918, October.
    24. Miles, William, 2008. "Inflation targeting and monetary policy in Canada: What is the impact on inflation uncertainty?," The North American Journal of Economics and Finance, Elsevier, vol. 19(2), pages 235-248, August.
    25. Demertzis Maria & Viegi Nicola, 2009. "Inflation Targeting: A Framework for Communication," The B.E. Journal of Macroeconomics, De Gruyter, vol. 9(1), pages 1-32, December.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:adx:journl:v:6:y:2024:i:1:p:70-80. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Iqbal Javed (email available below). General contact details of provider: https://www.scienceimpactpub.com/journals/index.php .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.