The Power of Bad News: How Mass Media Influences Inflation Expectations
Negative news in the media covering the overall economic situation may act as a meaningful predictor of the dynamics of Russians’ inflation expectations and their current inflation perceptions. These are most driven by news about the ruble exchange rate and economic crisis.
What is open to the Bank of Russia, while remaining closed for analysts?
A central bank may have an information advantage enabling it to better forecast macroeconomic indicators and, hence, make decisions that are not expected by the market. This advantage may exist both in reality and solely in the form of the market’s belief in it.
Can We Presume That Inflation Expectations Are Anchored in Russia?
With inflation expectations anchored, price spikes do not spread between market segments, and inflation returns to the target level. We have assessed that the expectations of Russian economists have been anchored since 2017, while those of households have not yet been anchored.
Little Fires Everywhere
The Fed waited too long to tighten the policy in its anti-inflation stand, believing the acceleration of prices to have been temporary. The biggest concern for markets now is whether the Fed could avoid another policy mistake with regards to over hiking interest rates.
‘Don’t Get Me Wrong’: the Central Bank’s Language
Central banks strive to speak clearly and simply – this is critical to effectively targeting inflation. We assessed the comprehensibility of the Bank of Russia's communications using neural networks – it showed that the level of its texts is rather complicated for the public.