Akademik Məlumat İdarəetmə Sistemi
Economic and Social development 55th international Scientific Conference on Economic and Social Development Development., vol.0,3, no.1, pp.287-295, 2020 (Conference Book)
Ensuring price and financial stability under conditions of inflation targeting involves management of the public inflation expectations. Inflation expectations are not only an indicator of future price dynamics but also an indicator of uncertainty and confidence in the financial sector–in particular in the central bank and its monetary policy. An analysis of inflation sentiments, including gaps between inflation expectations and real inflation, makes it possible to distinguish between periods of “price optimism”–when inflation expectations are low and “price pessimism”–when inflation expectations are overstated compared to real inflation. Understanding the mechanism of the inflation expectations formation requires testing them for rationality to apply sound monetary decisions and instruments by the regulator, and to prevent a crisis of confidence in the central bank. Testing the rationality of expectations is based on the theory (concept) of rational expectations, according to which agents formulate their expectations based on the using of all available market information. If there is a systematic error (dispersion of individual expectations around mathematical expectations)–there is a revaluation or underestimation of price dynamics in the future, that is, the irrationality of the formation of inflation expectations. The use of vector autoregression (VAR) allows to investigate the impact of the dynamics of underlying shocks on the inflation expectations of economic agents, using lag values of endogenous variables. The Bayesian approach is used to estimate the model parameters by applying the likelihood function to estimate the a priori parameter distribution …