Box from the Bank of Israel Annual Report for 2021: Anchoring Inflation Expectations Derived From the Capital Market in Israel
The public’s inflation expectations are known to have a significant effect on the economy and on monetary policy. One of the main challenges for monetary policy is to anchor the public’s medium- and long-term expectations within the target range.
·
The public’s inflation
expectations are known to have a significant effect on the economy and on
monetary policy. One of the main
challenges for monetary policy is to anchor the public’s medium- and long-term
expectations within the target range.
·
The anchoring of inflation
expectations reflects the public’s trust in the central bank’s ability to
achieve price stability in the medium-to-long term, and attests to the bank’s
ability to maintain expectations within the target range.
·
An examination of the
anchoring of inflation expectations derived from the capital market in Israel
during the sample period from January 2003 to November 2021 shows that
long-term (5–10 year) expectations during the sample period were almost
completely anchored, and that medium-term (3–5 years) expectations were
completely anchored, during most of the period.
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