Question

What are anchored inflationary expectations and how do they reduce the cost of an adverse inflation shock?

Answer 1

Inflation means the rise in the price of most goods and services of daily use. Anchored inflation is maintained by centre banks to monitor and balance the inflation rate.It balances the price stability.it helps to maintain the price stability so that sudden inflation may not affect the economy.
They helps to reduce the cost of adverse inflation shocks too, by anchored inflationary expectations,sudden negative surprises can be forcast,which helps to reduce the risk of facing a major inflation crisis,and helps to build up strategies to prevent the inflation through policies by central banks.