Central banks struggle to manage price expectations

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Expectations are often modelled as partly forward-looking and partly backward-looking. Photo: Shutterstock/XiXinXing

One might expect the Bank of Japan (BoJ) to be eager to push inflation expectations higher. Inflation in Japan was just starting to inch upwards in the face of governor Haruhiko Kuroda’s monetary onslaught when the oil price shock hit in mid-2014 and prices declined again. But as BoJ policy board member Sayuri Shirai noted in a speech in November last year, expectations are divided. On the one hand, firms see the economy stumbling, inflation at zero and they face intense competitive pressure, so

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