Price shocks worse with poorly anchored inflation expectations – IMF paper

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The terms of trade shocks have a more severe impact on prices when inflation expectations are poorly anchored, a team of researchers have found.

In the paper, published by the International Monetary Fund, Rudolfs Berns et al study price responses to the terms of trade shocks, based on international commodity prices. They examine data from 45 countries between 1989 and 2017.

In countries with weaker inflation expectation anchoring, “the annualised month-on-month inflation rate remains more than

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