ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

Flexible Inflation TargetingSubscribe to Flexible Inflation Targeting

Role and Impact of Inflation Targeting Regime on Households’ Inflation Expectation

The inflation targeting regime has almost no impact on households’ inflation expectation formation. The article finds a very high correlation between the three–month ahead households’ IE and current inflation perception. It argues that the IE majorly depends on households’ realisation of current inflation, providing very less space for other factors, like regime shift to IT. It further questions the fundamental need of awareness regarding the IT regime for it to affect the IE formation among households.

Can Central Banks Reduce Inflation?

To explore the empirical validity of the proposition that a rise in the interest rate would necessarily lead to a lower rate of inflation, empirical evidence from 158 countries, during 1981 to 2013, is used to critically evaluate this widely accepted idea. Based on the findings, it is argued that from a policy perspective, the so-called “inflation targeting” should be revisited.

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