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An inflation expectations horserace

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  • Guzman, Giselle C.

Abstract

For decades, the academic literature has focused on three survey measures of expected inflation: the Livingston Survey, the Survey of Professional Forecasters, and the Michigan Survey. While these measures have been useful in developing models of forecasting inflation, the data are low frequency measures which appear anachronistic in the modern era of high frequency and real-time data. I present a collection of 37 different measures of inflation expectations, including many previously unexploited monthly and real-time measures of inflation expectations. These higher frequency measures tend to outperform the standard three low frequency survey measures in tests of accuracy, predictive power, and rationality, indicating that there are benefits to using higher frequency measures of inflation expectations. Out of sample forecasts confirm the findings.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 36511.

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Date of creation: 25 Jan 2010
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Handle: RePEc:pra:mprapa:36511

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Related research

Keywords: Inflation; expectations; surveys; households; economists; rationality; efficiency; unbiasedness; forecast accuracy; out-of-sample forecasts; Granger Causality; high-frequency data; price level; money and prices; CPI; PPI; PCE;

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  1. Grant, Alan P. & Thomas, Lloyd B., 1999. "Inflationary expectations and rationality revisited," Economics Letters, Elsevier, Elsevier, vol. 62(3), pages 331-338, March.
  2. James H. Stock & Mark W. Watson, 1999. "Forecasting Inflation," NBER Working Papers, National Bureau of Economic Research, Inc 7023, National Bureau of Economic Research, Inc.
  3. Andrew Ang & Geert Bekaert & Min Wei, 2005. "Do Macro Variables, Asset Markets or Surveys Forecast Inflation Better?," NBER Working Papers, National Bureau of Economic Research, Inc 11538, National Bureau of Economic Research, Inc.
  4. Giannone, Domenico & Reichlin, Lucrezia & Small, David, 2008. "Nowcasting: The real-time informational content of macroeconomic data," Journal of Monetary Economics, Elsevier, Elsevier, vol. 55(4), pages 665-676, May.
  5. Joseph E. Stiglitz, 2011. "Rethinking Macroeconomics: What Failed, And How To Repair It," Journal of the European Economic Association, European Economic Association, European Economic Association, vol. 9(4), pages 591-645, 08.
  6. Mankiw, N. Gregory & Reis, Ricardo, 2002. "Sticky Information Versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve," Scholarly Articles, Harvard University Department of Economics 3415324, Harvard University Department of Economics.
  7. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, Econometric Society, vol. 55(2), pages 251-76, March.
  8. Guzman, Giselle C., 2008. "Using sentiment surveys to predict GDP growth and stock returns," MPRA Paper, University Library of Munich, Germany 36653, University Library of Munich, Germany.
  9. Gramlich, Edward M, 1983. "Models of Inflation Expectations Formation: A Comparison of Household and Economist Forecasts," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 15(2), pages 155-73, May.
  10. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, Elsevier, vol. 12(3), pages 383-398, September.
  11. Mariano, Roberto S. & Preve, Daniel, 2012. "Statistical tests for multiple forecast comparison," Journal of Econometrics, Elsevier, Elsevier, vol. 169(1), pages 123-130.
  12. Harvey, David & Leybourne, Stephen & Newbold, Paul, 1997. "Testing the equality of prediction mean squared errors," International Journal of Forecasting, Elsevier, Elsevier, vol. 13(2), pages 281-291, June.
  13. Stock, James H & Watson, Mark W, 2002. "Macroeconomic Forecasting Using Diffusion Indexes," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 20(2), pages 147-62, April.
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Cited by:
  1. Joseph E. Stiglitz, 2011. "Rethinking Macroeconomics: What Failed, And How To Repair It," Journal of the European Economic Association, European Economic Association, European Economic Association, vol. 9(4), pages 591-645, 08.

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