Has inflation targeting become less credible?

Beginning with the global financial crisis (2008) the correlation between crude oil prices and medium-term and forward inflation expectations increased leading to fears of their un-anchoring. Using the first principal component of commodity prices as a measure for global aggregate demand, we decompose nominal oil prices to a global demand factor and remaining factors. Using a Phillips Curve framework we find a structural change after the collapse of Lehman Brothers when inflation expectations reacted more strongly to global aggregate demand conditions embedded in oil prices. Within this framework we cannot reject the hypothesis that expectations remained anchored.

Publication infos:
Basel, Bank for International Settlements, 2018
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Number of pages:
43 p.
BIS Working Papers ; 729
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 Record created 2019-06-28, last modified 2019-08-05

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