Governor Ásgeir Jónsson delivered a presentation at The Reykjavik Economic Conference held at Harpa, organized by the Central Bank of Iceland in collaboration with The Center for International Macroeconomics at Northwestern University in Illinois.
In his presentation, entitled “When Expectations Become De-Anchored: Monetary Stability Through Pandemic, War and Volatility,” Ásgeir discussed how a series of shocks led inflation expectations in Iceland to become detached from the inflation target, weakening the effectiveness and credibility of monetary policy.
Ásgeir explained how the Central Bank responded with a restrictive monetary policy stance and a stronger focus on maintaining sufficiently high real interest rates in order to re-anchor expectations. While inflation and inflation expectations have gradually moderated, he emphasized that bringing inflation expectations fully to target remains a key challenge.