Advanced Search
MyIDEAS: Login

How do inflation expectations form? New insights from a high-frequency survey

Contents:

Author Info

  • Gabriele Galati
  • Peter Heemeijer
  • Richhild Moessner

Abstract

We provide new insights on the formation of inflation expectations - in particular at a time of great financial and economic turmoil - by evaluating results from a survey conducted from July 2009 through July 2010. Participants in this survey answered a weekly questionnaire about their short-, medium- and long-term inflation expectations. Participants received common information sets with data relevant to euro area inflation. Our analysis of survey responses reveals several interesting results. First, our evidence is consistent with long-term expectations having remained well anchored to the ECB's definition of price stability, which acted as a focal point for long-term expectations. Second, the turmoil in euro area bond markets triggered by the Greek fiscal crisis influenced short- and medium-term inflation expectations but had only a very small impact on long-term expectations. By contrast, longterm expectations did not react to developments of the euro area wide fiscal burden. Third, participants changed their expectations fairly frequently. The longer the horizon, the less frequent but larger these changes were. Fourth, expectations exhibit a large degree of timevariant non-normality. Fifth, inflation expectations appear fairly homogenous across groups of agents at the shorter horizon but less so at the medium- and long-term horizons.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.bis.org/publ/work349.pdf
File Function: Full PDF document
Download Restriction: no

File URL: http://www.bis.org/publ/work349.htm
Download Restriction: no

Bibliographic Info

Paper provided by Bank for International Settlements in its series BIS Working Papers with number 349.

as in new window
Length: 39 pages
Date of creation: Jul 2011
Date of revision:
Handle: RePEc:bis:biswps:349

Contact details of provider:
Postal: Centralbahnplatz 2, CH - 4002 Basel
Phone: (41) 61 - 280 80 80
Fax: (41) 61 - 280 91 00
Email:
Web page: http://www.bis.org/
More information through EDIRC

Related research

Keywords: inflation expectations; monetary policy; crisis;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Mirko Wiederholt & Bartosz Mackowiak, 2005. "Optimal Sticky Prices under Rational Inattention," 2005 Meeting Papers 369, Society for Economic Dynamics.
  2. N. Gregory Mankiw & Ricardo Reis, 2001. "Sticky Information Versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve," NBER Working Papers 8290, National Bureau of Economic Research, Inc.
  3. Adam, Klaus, 2005. "Experimental evidence on the persistence of output and inflation," Working Paper Series 0492, European Central Bank.
  4. Gabriele Galati & Steven Poelhekke & Chen Zhou, 2009. "Did the crisis affect inflation expectations?," DNB Working Papers 222, Netherlands Central Bank, Research Department.
  5. Faruk Gul & Wolfgang Pesendorfer, 2001. "Temptation and Self-Control," Econometrica, Econometric Society, vol. 69(6), pages 1403-1435, November.
  6. Christopher D Carroll, 2001. "The Epidemiology of Macroeconomic Expectations," Economics Working Paper Archive 462, The Johns Hopkins University,Department of Economics.
  7. Francisco Craveiro Dias & Cláudia Duarte & António Rua, 2008. "Inflation expectations in the euro area: Are consumers rational?," Working Papers w200823, Banco de Portugal, Economics and Research Department.
  8. Andrew T. Levin & Fabio M. Natalucci & Jeremy M. Piger, 2004. "The macroeconomic effects of inflation targeting," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 51-80.
  9. Lloyd B. Thomas, 1999. "Survey Measures of Expected U.S. Inflation," Journal of Economic Perspectives, American Economic Association, vol. 13(4), pages 125-144, Fall.
  10. Sugden, Robert, 1995. "A Theory of Focal Points," Economic Journal, Royal Economic Society, vol. 105(430), pages 533-50, May.
  11. Smith, Vernon L, 1991. "Rational Choice: The Contrast between Economics and Psychology," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 877-97, August.
  12. Magnus Forsells & Geoff Kenny, 2004. "Survey Expectations, Rationality and the Dynamics of Euro Area Inflation," Journal of Business Cycle Measurement and Analysis, OECD Publishing,CIRET, vol. 2004(1), pages 13-41.
  13. Ang, Andrew & Bekaert, Geert & Wei, Min, 2007. "Do macro variables, asset markets, or surveys forecast inflation better?," Journal of Monetary Economics, Elsevier, vol. 54(4), pages 1163-1212, May.
  14. Smith, Vernon L, 1982. "Microeconomic Systems as an Experimental Science," American Economic Review, American Economic Association, vol. 72(5), pages 923-55, December.
  15. Refet S. Gürkaynak & Brian Sack & Eric Swanson, 2003. "The excess sensitivity of long-term interest rates: evidence and implications for macroeconomic models," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
  16. Wandi Bruine de Bruin & Charles F. Manski & Giorgio Topa & Wilbert van der Klaauw, 2009. "Measuring consumer uncertainty about future inflation," Staff Reports 415, Federal Reserve Bank of New York.
  17. Christopher D Carroll, 2002. "Macroeconomic Expectations of Households and Professional Forecasters," Economics Working Paper Archive 477, The Johns Hopkins University,Department of Economics.
  18. Maria Demertzis & Nicola Viegi, 2005. "Inflation Targets as Focal Points," Working Papers 02, Economic Research Southern Africa.
  19. Vernon L. Smith, 1992. "Game Theory and Experimental Economics: Beginnings and Early Influences," History of Political Economy, Duke University Press, vol. 24(5), pages 241-282, Supplemen.
  20. Stephen Morris & Hyun Song Shin, 2002. "Social Value of Public Information," American Economic Review, American Economic Association, vol. 92(5), pages 1521-1534, December.
  21. Baumgartner, Josef & Glatzer, Ernst & Rumler, Fabio & Stiglbauer, Alfred, 2005. "How frequently do consumer prices change in Austria? Evidence from micro CPI data," Working Paper Series 0523, European Central Bank.
  22. Refet S. Gürkaynak & Brian Sack & Eric Swanson, 2005. "The Sensitivity of Long-Term Interest Rates to Economic News: Evidence and Implications for Macroeconomic Models," American Economic Review, American Economic Association, vol. 95(1), pages 425-436, March.
  23. Carlos Capistrán & Allan Timmermann, 2006. "Disagreement and Biases in Inflation Expectations," Computing in Economics and Finance 2006 3, Society for Computational Economics.
  24. Todd E. Clark & Troy Davig, 2008. "An empirical assessment of the relationships among inflation and short- and long-term expectations," Research Working Paper RWP 08-05, Federal Reserve Bank of Kansas City.
  25. Sims, Christopher A., 2003. "Implications of rational inattention," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 665-690, April.
  26. Eric Swanson, 2006. "Would an inflation target help anchor U.S. inflation expectations?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue aug11.
  27. Richhild Moessner & Feng Zhu & Colin Ellis, 2011. "Measuring disagreement in UK consumer and central bank inflation forecasts," BIS Working Papers 339, Bank for International Settlements.
  28. Todd E. Clark & Taisuke Nakata, 2008. "Has the behavior of inflation and long-term inflation expectations changed?," Economic Review, Federal Reserve Bank of Kansas City, issue Q I, pages 17-50.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:bis:biswps:349. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Timo Laurmaa).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.