Elisabeth Falck, Mathias Hoffmann, Patrick Hürtgen, 06 November 2017

Existing theoretical and empirical evidence suggests that less expansionary monetary policies lead to lower inflation and dampened inflation expectations. This column considers how the dispersion of inflation expectations can affect this relationship. The results show that an increase in the policy rate can give rise to higher inflation in the short run if professional inflation forecasts differ widely. These findings highlight the importance of considering the amount of agreement about inflation expectations in monetary policy decision-making.

Carlos Arteta, M. Ayhan Kose, Marc Stocker, Temel Taskin, 26 September 2016

Against a background of persistently weak growth and low inflation expectations, a number of central banks have implemented negative interest rate policies over the past few years. This column argues that such policies could help provide additional monetary policy stimulus, as long as policy interest rates are only modestly negative and do not stay negative for too long to avoid adverse effects on the financial sector. While these policies do have a place in the policymaker’s toolkit, they need to be handled with care to secure their benefits while mitigating risks.

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