An econometric analysis on survey-data-based anchoring of inflation expectations in Chile

Abstract

To what extent are inflation expectations of public agents anchored to the Central Bank of Chile’s (CBC) inflation target? In this note, I perform several econometric testing procedures in an attempt to answer this question. Expectations’ anchoring is understood as another central bank instrument, in the sense that it helps to promote price stability through the ability of policy makers to influence inflation expectations. Thus, expectations anchoring comes out as a result of policy actions. I provide evidence suggesting that agents’ expectations are indeed anchored. This is found within the manoeuvring horizon of monetary policy. Furthermore, within the fully-fledged inflation targeting period—starting in 2000—three periods are detected, namely (i) the pre-Global Financial Crisis (GFC) period, (ii) the post-GFC period until mid-2015, and (iii) the low inflation period afterwards. Particularly for the last period, the anchoring effect is clearer and more pronounced.