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The Impact of Inflation Anchor Strength and Monetary Policy Transparency on Inflation During the Period of Emerging Market Volatility in Summer 2018

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  • Tatiana Evdokimova

    (Nordea Bank)

  • Grigory Zhirnov

    (Nordea Bank)

  • Inge Klaver

    (Nordea Bank)

Abstract

This paper examines the link between foreign exchange dynamics and inflation in developing countries with respect to the degree of inflation expectation anchoring they employed in 2011-2019. Particular attention is paid to analysis of the inflationary consequences of the considerable weakness of emerging markets' currencies in summer 2018. Analysis of 2011-2019 confirms that inflation accelerates less in reaction to FX weakness in countries with more anchored inflation expectations. However, similar statistically significant differences were not found during the shock of 2018. One way of anchoring inflation expectations is to make monetary policy more transparent. We have updated the central bank transparency index introduced in Dincer and Eichengreen (2007) and confirm that central bank transparency in emerging markets has considerably improved in recent years. Inflation expectations in these countries have been approaching inflation targets as central banks' policies become more transparent. We also provide some suggestions for improving the quality of monetary policy communication by the Bank of Russia in order to increase its transparency and consequently contribute to a further decrease in inflation expectations.

Suggested Citation

  • Tatiana Evdokimova & Grigory Zhirnov & Inge Klaver, 2019. "The Impact of Inflation Anchor Strength and Monetary Policy Transparency on Inflation During the Period of Emerging Market Volatility in Summer 2018," Russian Journal of Money and Finance, Bank of Russia, vol. 78(3), pages 71-88, September.
    • Handle: RePEc:bkr:journl:v:78:y:2019:i:3:p:71-88
    DOI: 10.31477/rjmf.201903.71
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    Cited by:

    1. Alina Evstigneeva & Mark Sidorovskiy, 2021. "Assessment of Clarity of Bank of Russia Monetary Policy Communication by Neural Network Approach," Russian Journal of Money and Finance, Bank of Russia, vol. 80(3), pages 3-33, September.

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    More about this item

    Keywords

    inflation expectations; monetary policy transparency; inflation targeting; emerging markets;
    All these keywords.

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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