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Survey Measures of Expected U.S. Inflation

  • Lloyd B. Thomas
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    The forecasting performance of widely accessible surveys of expected inflation are evaluated against naive and financial market benchmark forecasts. In the period of rising inflation (1960-80), the Michigan household consensus forecasts exhibited smaller errors than the Livingston Survey of economists and the benchmark forecasts. Unlike Livingston, the Michigan forecasts were unbiased. Since 1980, Livingston forecasts have been more accurate than Michigan, though unbiasedness is rejected in both cases. SPF forecasts, available since 1981, have been slightly superior to Livingston. In forecasting inflation, respondents generally failed to take account of cyclical conditions, and strong-form rationality is not supported.

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    Article provided by American Economic Association in its journal Journal of Economic Perspectives.

    Volume (Year): 13 (1999)
    Issue (Month): 4 (Fall)
    Pages: 125-144

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    Handle: RePEc:aea:jecper:v:13:y:1999:i:4:p:125-144
    Note: DOI: 10.1257/jep.13.4.125
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    1. Fama, Eugene F. & Gibbons, Michael R., 1984. "A comparison of inflation forecasts," Journal of Monetary Economics, Elsevier, vol. 13(3), pages 327-348, May.
    2. Dean Croushore, 1997. "The Livingston Survey: still useful after all these years," Business Review, Federal Reserve Bank of Philadelphia, issue Mar, pages 15-27.
    3. Herbert E. Taylor, 1992. "The Livingston Surveys: a history of hopes and fears," Business Review, Federal Reserve Bank of Philadelphia, issue Jan, pages 15-27.
    4. Fama, Eugene F, 1975. "Short-Term Interest Rates as Predictors of Inflation," American Economic Review, American Economic Association, vol. 65(3), pages 269-82, June.
    5. Ehrbeck, Tilman & Waldmann, Robert, 1996. "Why Are Professional Forecasters Biased? Agency versus Behavioral Explanations," The Quarterly Journal of Economics, MIT Press, vol. 111(1), pages 21-40, February.
    6. David Laster & Paul Bennett & In Sun Geoum, 1999. "Rational Bias In Macroeconomic Forecasts," The Quarterly Journal of Economics, MIT Press, vol. 114(1), pages 293-318, February.
    7. Lovell, Michael C, 1986. "Tests of the Rational Expectations Hypothesis," American Economic Review, American Economic Association, vol. 76(1), pages 110-24, March.
    8. Rich, Robert W, 1989. "Testing the Rationality of Inflation Forecasts from Survey Data: Another Look at the SRC Expected Price Change Data," The Review of Economics and Statistics, MIT Press, vol. 71(4), pages 682-86, November.
    9. Dean Croushore, 1996. "Inflation forecasts: how good are they?," Business Review, Federal Reserve Bank of Philadelphia, issue May, pages 15-25.
    10. Hafer, R W & Hein, Scott E, 1985. "On the Accuracy of Time-Series, Interest Rate, and Survey Forecasts of Inflation," The Journal of Business, University of Chicago Press, vol. 58(4), pages 377-98, October.
    11. John A. Carlson, 1977. "A Study of Price Forecasts," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 6, number 1, pages 27-56 National Bureau of Economic Research, Inc.
    12. Gramlich, Edward M, 1983. "Models of Inflation Expectations Formation: A Comparison of Household and Economist Forecasts," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 15(2), pages 155-73, May.
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