Are inflation expectations in Russia forward–looking?. (9th April 2014)

• Record Type: Journal Article
• Authors: Sokolova, Anna
• Is Part Of: International journal of computational economics and econometrics. Volume 4:Number 1/2(2014)
• Page Start: 254
• Page End: 268
• Publication Date: 2014-04-09
• Subjects: inflation expectations -- monetary policy -- Russia -- inflation dynamics -- disinflation measures -- macroeconomics -- Central Bank; Econometrics -- Periodicals; Economics -- Data processing -- Periodicals; 330.01519505
• Languages: English
• ISSNs: 1757-1170

Abstract

The aim of this research is to identify the process that guides the evolution of inflation expectations in Russia. The significance of this theoretical issue is stipulated by the fact that the characteristics of this process are the key determinants of both inflation dynamics and the effectiveness of disinflation measures introduced by the Central Bank. This paper studies the degree to which inflation expectations appear forward–looking and backward–looking. We estimate the Hybrid Phillips curve that includes proxies for both backward– and forward–looking components of inflation expectations. Applying generalised method of moments we asses, which of the two components play a predominant role in determining Russian inflation. The estimates are based on the monthly macroeconomic statistics for the period 1999–2013. Our analysis suggests that to a large extent inflation expectations in Russia remain backward–looking. Hence, it is recommended to take action to enhance agents confidence in the Central Banks policy before switching to aggressive inflation targeting.