How Credible Is the Central Bank of Russia to Russian Households?
https://doi.org/10.18288/1994-5124-2024-4-34-59
Abstract
The article examines the degree of public trust in the Central Bank of Russia after the transition to inflation targeting. For this purpose, the author analyzes available data from inFOM consumer surveys of confidence in the Bank of Russia as a whole as well as in its inflation targets from 2014 to 2024. Public confidence in the Bank of Russia remained relatively high from 2014 to 2017 as inflation targeting was adopted, but the Bank became far less credible to households from 2019 to 2022 because they did not believe the inflation target of 4% was achievable by the end of the current year or over the medium term. This is probably due to their lack of awareness that the Bank’s principal goal is price stability even though they are actually experiencing high inflation. The households surveyed think that government authorities are largely responsible for controlling inflation. Furthermore, consumers do not take notice of the information provided by the Central Bank of Russia. Using news articles from Russian media, posts from news communities on the VKontakte social network, and Google Trends search queries, the author shows that consumers who ignore information about the Bank’s policy are at a serious disadvantage when there is economic uncertainty. The discrepancy between the inflation expectations of consumers and professional forecasters diminishes as the volume of information tied to the phrase “Bank of Russia” increases in media, social network posts, and online searches.
Keywords
survey data,
central bank credibility,
inflation targeting,
internet data,
inflation expectations gap
JEL: D12, D82, E52, E58
Supporting agencies: The article was prepared as a part of a state research project of the Russian Presidential Academy of National Economy and Public Administration.
About the Author
D. A. Petrova
RANEPA
Russian Federation
Russian Federation
Diana A. Petrova, Research Fellow, Center for the Study of Central Bank Issues, Institute of Applied Economic Research
82, Vernadskogo pr., Moscow, 119571
References
1. Evstigneeva A., Karpov D. Vliyanie negativnykh novostey na vospriyatie inflyatsii nasleniem [The Impact of Negative News on Public Perception of Inflation]. Seriya dokladov ob ekonomicheskikh issledovaniyakh Banka Rossii [Bank of Russia Working Paper Series], no. 111, 2023 . (In Russ.)
2. Grishchenko V., Gasanova D., Fomin E., Korenyak G. Identifikatsiya tovarov-markerov i vliyanie ikh tsen na inflyatsionnye ozhidaniya rossiyskikh domokhozyaystv [Visible Prices and Their Influence on Inflation Expectations of Russian Households]. Seriya dokladov ob ekonomicheskikh issledovaniyakh Banka Rossii [Bank of Russia Working Paper Series] , 2023, no. 117. (In Russ).
3. Grishchenko V., Kadreva O., Porshakov A., Chernyadyev D. Otsenka zayakorennosti inflyatsionnykh ozhidaniy dlya Rossii [Assessing the Anchoring of Inflation Expectations for Russia]. Moscow, Bank of Russia, Analiticheskaya zapiska Banka Rossii [Bank of Russia Analytical Note], 2022. (In Russ.)
4. Albinowski M., Ciżkowicz P., Rzońca A. Links Between Trust in the ECB and Its Interest Rate Policy // Applied Economics. 2014. Vol. 46. No 25. P. 3090–3106. DOI: 10.1080/00036846.2014.922674.
5. Binder C. Fed Speak on Main Street: Central Bank Communication and Household Expectations // Journal of Macroeconomics. 2017. Vol. 52. P. 238–251. DOI: 10.1016/j.jmacro.2017.05.003.
6. Blanchflower D. G., MacCoille C. The Formation of Inflation Expectations: Аn Empirical Analysis for the UK. NBER. Working Paper No w15388. 2009. DOI: 10.3386/w15388.
7. Blinder A. S. Central-Bank Credibility: Why Do We Care? How Do We Build It? // American Economic Review. 2000. Vol. 90. No 5. P. 1421–1431. DOI: 10.1257/aer.90.5.1421.
8. Blinder A. S., Ehrmann M., De Haan J., Jansen D. J. Central Bank Communication With the General Public: Promise or False Hope? Cambridge: NBER. Working Paper No 30277. 2022. DOI: 10.3386/w30277.
9. Blinder A. S., Ehrmann M., Fratzscher M., De Haan J., Jansen D. J. Central Bank Communication and Monetary Policy: А Survey of Theory and Evidence // Journal of Economic Literature. 2008. Vol. 46. No 4. P. 910–945. DOI: 10.1257/jel.46.4.910.
10. Bomfim A. N., Rudebusch G. D. Opportunistic and Deliberate Disinflation Under Imperfect Credibility // Journal of Money, Credit and Banking. 2000. Vol. 32. No 4. P. 707–721. DOI: 10.2307/2601179.
11. Bursian D., Faia E. Trust in the Monetary Authority // Journal of Monetary Economics. 2018. Vol. 98. P. 66–79. DOI: 10.1016/j.jmoneco.2018.04.009.
12. Bursian D., Fürth S. Trust Me! I Аm a European Central Banker // Journal of Money, Credit and Banking. 2015. Vol. 47. No 8. P. 1503–1530. DOI: 10.1111/jmcb.12282.
13. Carroll C. D. Macroeconomic Expectations of Households and Professional Forecasters // The Quarterly Journal of Economics. 2003. Vol. 118. No 1. P. 269–298. DOI: 10.1162/00335530360535207.
14. Christelis D., Georgarakos D., Jappelli T., Van Rooij M. Trust in the Central Bank and Inflation Expectation. Frankfurt am Main: European Central Bank. Working Paper Series No 3540974. 2020. DOI: 10.2139/ssrn.3540974.
15. Coibion O., Gorodnichenko Y., Kumar S. How Do Firms Form Their Expectations? New Survey Evidence // American Economic Review. 2018. Vol. 108. No 9. P. 2671–2713. DOI: 10.1257/aer.20151299.
16. Coibion O., Gorodnichenko Y., Kumar S., Pedemonte M. Inflation Expectations as a Policy Tool? // Journal of International Economics. 2020. Vol. 124. P. 103297. DOI: 10.1016/j.jinteco.2020.103297.
17. Coibion O., Gorodnichenko Y., Weber M. Monetary Policy Communications and Their Effects on Household Inflation Expectations // Journal of Political Economy. 2022. Vol. 130. No 6. P. 1537–1584. DOI: 10.1086/718982.
18. Coleman W., Nautz D. Inflation Expectations, Inflation Target Credibility and the COVID-19 Pandemic: New Evidence From Germany. Frankfurt am Main: Center for Financial Studies. Working Paper No 658. 2021. DOI: 10.2139/ssrn.3963298.
19. Cukierman A., Meltzer A. H. A Theory of Ambiguity, Credibility, and Inflation Under Discretion and Asymmetric Information // Econometrica. 1986. P. 1099–1128. DOI: 10.2307/1912324.
20. D’Acunto F., Malmendier U., Ospina J., Weber M. Exposure to Grocery Prices and Inflation Expectations // Journal of Political Economy. 2021. Vol. 129. No 5. P. 1615–1639. DOI: 10.1086/713192.
21. Ehrmann M., Soudan M., Stracca L. Explaining European Union Citizens’ Trust in the European Central Bank in Normal and Crisis Times // The Scandinavian Journal of Economics. 2013. Vol. 115. No 3. P. 781–807. DOI: 10.1111/sjoe.12020.
22. Eusepi S., Preston B. Central Bank Communication and Expectations Stabilization // American Economic Journal: Macroeconomics. 2010. Vol. 2. No 3. P. 235–271. DOI: 10.1257/mac.2.3.235.
23. Evstigneeva A., Sidorovskiy M. Assessment of Clarity of Bank of Russia Monetary Policy Communication by Neural Network Approach // Russian Journal of Money and Finance. 2021. Vol. 80. No 3. P. 3–33. DOI: 10.31477/rjmf.202103.03.
24. Farvaque E., Hayat M.A., Mihailov A. Who Supports the ECB? Evidence From Eurobarometer Survey Data // The World Economy. 2017. Vol. 40. No 4. P. 654–677. DOI: 10.1111/twec.12472.
25. Faust J., Svensson L. Transparency and Credibility: Monetary Policy With Unobservable Goals // International Economic Review. 2001. Vol. 42. No 2. P. 369–397. DOI: 10.1111/1468-2354.00114.
26. Fellner W., Phelps E. S., Gordon R. J. The Credibility Effect and Rational Expectations: Implications of the Gramlich Study // Brookings Papers on Economic Activity. 1979. Vol. 1979. No 1. P. 167–189. DOI: 10.2307/2534307.
27. Georganas S., Healy P. J., Li N. Frequency Bias in Consumers ' Perceptions of Inflation: Аn Experimental Study // European Economic Review. 2014. Vol. 67. P. 144–158. DOI: 10.1016/j.euroecorev.2014.01.014.
28. Haberler G. Critical Notes on Rational Expectations // Journal of Money, Credit and Banking. 1980. Vol. 12. No 4. P. 833–836. DOI: 10.2307/1992038.
29. Horvath R., Katuscakova D. Transparency and Trust: The Case of the European Central Bank // Applied Economics. 2016. Vol. 48. No 57. P. 5625–5638. DOI: 10.1080/00036846.2016.1181833
30. Kumar S., Afrouzi H., Coibion O., Gorodnichenko Y. Inflation Targeting Does Not Anchor Inflation Expectations: Evidence From Firms in New Zealand // Brookings Papers on Economic Activity. 2015. Vol. 2015(2). P. 151–225.
31. Łyziak T., Mackiewicz J., Stanisławska E. Central Bank Transparency and Credibility: Тhe Case of Poland, 1998–2004 // European Journal of Political Economy. 2007. Vol. 23. No 1. P. 67–87. DOI: 10.1016/j.ejpoleco.2006.05.004.
32. Mankiw G., Reis R. Sticky Information Versus Sticky Prices: А Proposal to Replace the New Keynesian Phillips Curve // The Quarterly Journal of Economics. 2002. Vol. 117. No 4. P. 1295–1328. DOI: 10.1162/003355302320935034.
33. Mazumder S. The Reaction of Inflation Forecasts to News About the Fed // Economic Modelling. 2021. Vol. 94. P. 256–264. DOI: 10.1016/j.econmod.2020.09.026.
34. Morris S., Shin H. S. The Social Value of Public Information // American Economic Review. 2002. Vol. 92. P. 1521–1534. DOI: 10.1257/000282802762024610.
35. Yuxiang K., Chen Z. Monetary Policy Credibility and Inflationary Expectation // Journal of Economic Psychology. 2010. Vol. 31. No 4. P. 487–497. DOI: 10.1016/j.joep.2010.03.012
Review
For citations:
Petrova D.A. How Credible Is the Central Bank of Russia to Russian Households? Economic Policy. 2024;19(4):34-59. (In Russ.) https://doi.org/10.18288/1994-5124-2024-4-34-59
Views:
373
Email this article 