The time-varying anchoring of inflation expectations in Australia: new evidence based on surveys and bond-market data
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PhD Seminar (Econ)
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This paper examines whether the RBA has instilled strong confidence in public beliefs regarding its commitment to inflation, shedding light on the anchoring of inflation expectations in Australia. Instead of providing a binary state of (un)anchoring, this research investigates the evolution of anchoring within both time-invariant and time-variant frameworks. Empirical evidence reveals robust results about the significant positive impact of actual inflation on long-term expectations held by Australian surveyors and bond investors. This indicates that the RBA’s ability to effectively anchor these public beliefs is limited. Nonetheless, the dynamic anchoring estimated from the time-varying VAR model with stochastic volatility shows a slight improvement in anchoring effects since 1996, suggesting a gain in the credibility of the bank. Increasing transparency in the target is advocated to enhance the expectation channel.
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