Increases in inflation expectations have the flavor of adverse aggregate supply shocks in that they tend to increase the volatility of both inflation and output, in a combination that depends on how strongly the monetary policymakers act to offset these changes in expectations.
At other times, they are “out of sync” and can work against it, making monetary policy spongier, and perhaps less effective at the margin than would otherwise be the case. At times over the past decade, monetary policy in New Zealand and some other smaller open economies had to contend with global interest rates that were considerably lower than domestic economic conditions would warrant.