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The Accuracy and Rationality of US and Australian Household Inflation Forecasts: A Comparative Study of the Michigan and Melbourne Institute Surveys

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  • LLOYD B. THOMAS
  • ALAN P. GRANT

Abstract

Median household 1‐year‐ahead consumer price inflation forecasts generated by the Michigan survey of US households and the Melbourne Institute survey of Australian households are tested for accuracy, bias and efficiency, and compared with naïve forecasts, forecasts derived from financial market phenomena, and forecasts of professional economists. In the post‐1993:1 period which encompasses the Melbourne Institute's 2006 revision of the Australian series, both countries’ household forecasts are unbiased, efficient and relatively accurate. In the earlier period (1978:1–1993:1), the Melbourne series exhibits substantial upward bias. Several potential explanations for the inferior early Melbourne performance are offered.

Suggested Citation

  • Lloyd B. Thomas & Alan P. Grant, 2008. "The Accuracy and Rationality of US and Australian Household Inflation Forecasts: A Comparative Study of the Michigan and Melbourne Institute Surveys," The Economic Record, The Economic Society of Australia, vol. 84(265), pages 237-252, June.
    • Handle: RePEc:bla:ecorec:v:84:y:2008:i:265:p:237-252
    DOI: 10.1111/j.1475-4932.2008.00465.x
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    1. Wändi Bruine de Bruin & Michael F. Bryan & Simon M. Potter & Giorgio Topa & Wilbert Van der Klaauw, 2008. "Rethinking the measurement of household inflation expectations: preliminary findings," Staff Reports 359, Federal Reserve Bank of New York.

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