News and inflation expectation updates

Produced by: 
Banco Central del Uruguay
Available from: 
December 2015
Paper author(s): 
Gerardo Licandro
Miguel Mello
Topic: 
Macroeconomics - Economic growth - Monetary Policy
Year: 
2016

Do inflation expectations react to news? In the last decade, Uruguay has resorted to heterodox practices along with inflation targeting to prevent the divergence of inflation, including price subsidies and agreements. Using data from a novel survey of firm's inflation expectations we study individual inflation expectation updates and the impact on individual expectation updates of news regarding monetary policy and other heterodox measures. To control for monetary policy stance we construct a qualitative index of monetary policy based on monetary policy communications. We construct several news indices for monetary policy and other measures. We find that price controls news tends to generate clusters of inflation expectations updates. Using several econometric techniques we are able to find that news about heterodox measures do affect inflation expectations with the expected sign.

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Research section: 
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