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Inflation expectation dynamics:the role of past, present and forward looking information

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  • Paul Hubert

    (Ofce,Sciences-po)

  • Harun Mirza

    (European Central Bank)

Abstract

Assuming that private agents need to learn inflation dynamics to form their inflation expectations and that they believe a hybrid New-Keynesian Phillips Curve (NKPC) is the true data generating process of inflation, we aim at establishing the role of forward-looking information in inflation expectation dynamics. We find that longer term expectations are crucial in shaping shorter-horizon expectations. Professional forecasters put a greater weight on forward-looking information presumably capturing beliefs about the central bank inflation target or trend inflation while lagged inflation remains significant. Finally,the NKPC-based inflation expectations model fits well for professional forecasts in contrast to consumers.

Suggested Citation

  • Paul Hubert & Harun Mirza, 2014. "Inflation expectation dynamics:the role of past, present and forward looking information," Documents de Travail de l'OFCE 2014-07, Observatoire Francais des Conjonctures Economiques (OFCE).
    • Handle: RePEc:fce:doctra:1407
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    References listed on IDEAS

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    Cited by:

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    3. Ignacio Lozano-Espitia & Fernando Arias-Rodríguez, 2022. "The Relationship between Fiscal and Monetary Policies in Colombia: An Empirical Exploration of the Credit Risk Channel," Borradores de Economia 1196, Banco de la Republica de Colombia.
    4. Lozano-Espitia, Ignacio & Arias-Rodríguez, Fernando, 2022. "The Relationship between Fiscal and Monetary Policies in Colombia: An Empirical Exploration of the Credit Channel," Latin American Journal of Central Banking (previously Monetaria), Elsevier, vol. 3(4).

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    More about this item

    Keywords

    Survey expectations; inflation; New Keynesian Philipps Curve;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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