Measuring disagreement in UK consumer and central bank inflation forecasts
AbstractWe provide a new perspective on disagreement in inflation expectations by examining the full probability distributions of UK consumer inflation forecasts based on an adaptive bootstrap multimodality test. Furthermore, we compare the inflation forecasts of the Bank of England's Monetary Policy Committee (MPC) with those of UK consumers, for which we use data from the 2001-2007 February GfK NOP consumer surveys. Our analysis indicates substantial disagreement among UK consumers, and between the MPC and consumers, concerning one-year- ahead inflation forecasts. Such disagreement persisted throughout the sample, with no signs of convergence, consistent with consumers' inflation expectations not being "well-anchored" in the sense of matching the central bank's expectations. UK consumers had far more diverse views about future inflation than the MPC. It is possible that the MPC enjoyed certain information advantages which allowed it to have a narrower range of inflation forecasts.
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Bibliographic InfoPaper provided by Bank for International Settlements in its series BIS Working Papers with number 339.
Length: 49 pages
Date of creation: Feb 2011
Date of revision:
Adaptive kernel method; adaptive multimodality test; consumer survey; inflation forecasts; nonparametric density estimation;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-03-12 (All new papers)
- NEP-CBA-2011-03-12 (Central Banking)
- NEP-FOR-2011-03-12 (Forecasting)
- NEP-MAC-2011-03-12 (Macroeconomics)
- NEP-MKT-2011-03-12 (Marketing)
- NEP-MON-2011-03-12 (Monetary Economics)
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