Paper presented at 17th BIS Annual Research Conference on June 22, 2018. 2  expectations are influenced by the actual inflation at short horizons, but it is generally considered that they are eventually determined by some anchor point at longer horizons. This last point leads to one answer to the question how monetary policy challenges from spillovers can be met.
Better-anchored inflation expectations based on clear and credible communications by a central bank would be one way to deal with the spillover of external shocks. Of course, I understand more challenging situations faced by central banks in emerging economies that are relatively vulnerable to volatile capital flows and exchange rate fluctuations.