Heterogeneity in Monthly Inflation Expectations in Brazil: Evidence with Aggregate Data from the Focus Survey

In this paper the heterogeneity in the inflation expectations gathered by the Central Bank of Brazil is analyzed through descriptive statistics and econometric estimations for the median, dispersion, amplitude and recurrence of the presence of institutions in the Top 5 group, which includes those survey participants with the highest level of accuracy in inflation forecasting. Aggregate expectations for the IPCA consumer price index from January 2003 to August 2016 are employed. Our results include an almost perfect correlation between the forecasts of the set of all survey participants and the forecasts made by the Top 5, a gradual adjustment of expectations, the significance of the reference day for the selection for the Top 5, and a positive relation between changes in the median and its dispersion. For the set of all survey participants there is a positive relation between changes in the median and its dispersion and a negative one with the inflation rate in the previous month. This relationship was not found for the Top 5. Recurrence of a given institution in the Top 5 for two consecutive months is a condition positively related with the dispersion of expectations over the month and negatively related with the forecast errors in the previous month. These results indicate that the Top 5 reward system seems to induce a relevant proportion of the survey participants to keep their forecasts updated.