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Using Survey Data on Inflation Expectations in the Estimation of Learning and Rational Expectations Models

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  • Ormeño, Arturo

    (Department of Economics, University of Amsterdam (UvA))

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    Abstract

    Do survey data on inflation expectations contain useful information for estimating macroeconomic models? I address this question by using survey data in the New Keynesian model by Smets and Wouters (2007) to estimate and compare its performance when solved under the assumptions of Rational Expectations and learning. This information serves as an additional moment restriction and helps to determine the forecasting model for inflation that agents use under learning. My results reveal that the predictive power of this model is improved when using both survey data and an admissible learning rule for the formation of inflation expectations.

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    File URL: http://www.bcrp.gob.pe/docs/Publicaciones/Documentos-de-Trabajo/2012/documento-de-trabajo-07-2012.pdf
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    Bibliographic Info

    Paper provided by Banco Central de Reserva del Perú in its series Working Papers with number 2012-007.

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    Date of creation: Feb 2012
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    Handle: RePEc:rbp:wpaper:2012-007

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    Related research

    Keywords: Survey data; Learning models; Inflation expectations; Bayesian econometrics;

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    1. Carceles-Poveda, Eva & Giannitsarou, Chryssi, 2006. "Adaptive Learning in Practice," CEPR Discussion Papers 5627, C.E.P.R. Discussion Papers.
    2. Sergey Slobodyan & Raf Wouters, 2009. "Learning in an Estimated Medium-Scale DSGE Model," CERGE-EI Working Papers wp396, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
    3. Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, vol. 48(5), pages 1305-11, July.
    4. Raf Wouters & Sergey Slobodyan, 2009. "Estimating a medium–scale DSGE model with expectations based on small forecasting models," 2009 Meeting Papers 654, Society for Economic Dynamics.
    5. Andrew Ang & Geert Bekaert & Min Wei, 2005. "Do Macro Variables, Asset Markets or Surveys Forecast Inflation Better?," NBER Working Papers 11538, National Bureau of Economic Research, Inc.
    6. Adam, Klaus & Padula, Mario, 2003. "Inflation dynamics and subjective expectations in the United States," Working Paper Series 0222, European Central Bank.
    7. Wiliam Branch & George W. Evans, 2005. "A Simple Recursive Forecasting Model," University of Oregon Economics Department Working Papers 2005-3, University of Oregon Economics Department, revised 01 Feb 2005.
    8. Sims, Christopher A, 2002. "Solving Linear Rational Expectations Models," Computational Economics, Society for Computational Economics, vol. 20(1-2), pages 1-20, October.
    9. Binder, M. & Pesaran, H., 1996. "Multivariate Linear Rational Expectations Models: Characterisation of the Nature of the Solutions and Their Fully Recursive Computation," Cambridge Working Papers in Economics 9619, Faculty of Economics, University of Cambridge.
    10. Olivier Coibion & Yuriy Gorodnichenko, 2010. "Information Rigidity and the Expectations Formation Process: A Simple Framework and New Facts," Working Papers 102, Department of Economics, College of William and Mary.
    11. Ricardo Nunes, 2010. "Inflation Dynamics: The Role of Expectations," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(6), pages 1161-1172, 09.
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