Monetary Policy

Russians tend to judge inflation by average expenditure rather than ‘visible items’ and describe a ’good economy’ as a self-reliant manufacturing powerhouse. This influences the perception that the key rate is an instrument to support production rather than manage demand.

Countries that do not target inflation responded to the post-COVID inflation surge in a similar way to those with inflation targeting (IT), that is by raising policy rates. This crisis-driven convergence is the ultimate test of the IT regime’s efficiency under various conditions.

More and more people around the world are getting news from social media. For regulators, this is an opportunity to receive feedback in real time. In our study, we show this by building an index that reflects how Telegram users channels perceive the Bank of Russia’s decisions.

Unlike in other countries, inflation expectations in Russia are unresponsive to low inflation data of previous years, an experiment has found. This makes it imperative to ensure sustainably low inflation and prove that price stability is achievable.

Why does a central bank need a Telegram channel, what makes the Russian economic information space special, how are inflation expectations managed, does AI help the Bank of Russia write press releases – these are key points from the discussion hosted by New Economic School.

Central banks have a system for announcing the future path of monetary policy: forward guidance. It contributes to the reducing uncertainty in the economy and decreasing market volatility and helps economic agents adjust to expected changes in advance.

People’s inflation expectations are often based on the dynamics of prices for certain goods and services called “visible items”. For Russians, these visible items include durables such as cars and clothes, and also petrol, housing maintenance and public transport fares.

Have central banks opened up due to the increased openness of the authorities or the developments of new media? This is not the case. Openness was a response to unprecedented shocks that has helped to withstand such shocks when traditional tools have turned out to be ineffective.

The more clearly businesses and households understand the central bank's policy, the closer their inflation expectations are to the target. However, it is possible for monetary policy to be excessively transparent, which can bring more harm than benefit.

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.

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.

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.

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.

Central banks do not have tools to reduce inequality, but this does’t mean that they can do nothing to make a society more equitable. They are able to contribute to this goal by fulfilling their mandate, namely by keeping inflation low and preventing financial crises.

Inflation targeting might support economic growth by lowering inflation and volatility. However, monetary policy alone cannot drive growth.

Real-world experience confirms that forward guidance makes central bank policy even more predictable.