Inflation Expectations in Senegal

In emerging markets and developing countries, inflation expectations are often less anchored, primarily attributed to the lack of credible monetary policy. We first test whether this fact holds in the context of Senegal, which has a relatively credible monetary framework characterized by a fixed exchange rate peg to the Euro and monetary policy historically monitored by the Bank of France and administered by the Central Bank of West African States (BCEAO). To assess how well-anchored expectations are, we elicit households’ short- and medium-term inflation expectations. Next, we examine how macroeconomic shocks and uncertainty in the form of fiscal shocks (budget shocks) and government interventions (price controls) affect the anchoring of inflation expectations by providing randomized information treatments. Finally, we examine the pass-through of these macroeconomic shocks to household behavior.