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Forward-looking component in consumers’ expectations and inflation forecast targeting: the case of six European economies

Author

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  • Magdalena Szyszko

    (WSB University in Poznan, Institute of Finance, ul. Powstañców Wielkopolskich 5, 61-895 Poznañ, Poland)

  • Aleksandra Rutkowska

    (FPoznan University of Economics and Business, Department of Applied Mathematics, al. Niepodleg³oœci 2, 61-875 Poznañ, Poland)

Abstract

Since there are different ways of revealing central banks’ intentions, a simple research question, which we address in this study, arises. Is the forward-looking (FL) component of consumers’ expectations related to the way in which the forecast is revealed and used by central banks? The research covers six countries: The Czech Republic, Hungary, Romania, Poland, Sweden, and the UK, over the period of 2001-2016. Our methodology consists of the quantification of expectations, tests for rationality of expectations, estimation of the degree of their FL, the index-based assessment of central banks’ forecasting transparency and importance of forecasts in monetary policy, as well as correlation examination of forward-lookingness of monetary policy and expectation errors. Based on the completed research, we link the results of the FL analysis to the index-based assessment of inflation forecasts targeting. The results are varied. The highest degree of expectations’ FL is found for the UK and Sweden. Czech consumers’ expectations are less FL, whereas central banks’ involvement in inflation forecast targeting is comparable to the Swedish case. For two countries we found no forward-looking component in consumers’ expectations. The study makes a valid contribution to the existing literature as it presents a novel approach to analysing the relation between forecasts and inflation forecast targeting and expectations.

Suggested Citation

  • Magdalena Szyszko & Aleksandra Rutkowska, 2019. "Forward-looking component in consumers’ expectations and inflation forecast targeting: the case of six European economies," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 37(1), pages 77-112.
    • Handle: RePEc:rfe:zbefri:v:37:y:2019:i:1:p:77-112
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    References listed on IDEAS

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    More about this item

    Keywords

    inflation forecast; inflation forecast targeting; consumers’ expectations; forward-lookingness of expectations;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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