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New Information and Updating of Market Experts’ Inflation Expectations

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  • Arnildo da Silva Correa
  • Paulo Picchetti

Abstract

This paper investigates how the disclosure of new information regarding the recent behavior of inflation affects inflation expectations. Using a panel of more than 100 professional forecasters and the release of a signal about the inflation rate to identify the effects, we find that new information leads individual forecasters to update their expectations immediately. However, the parameter is not very high, which is consistent with sticky information and staggered updating of expectations. The precision of new information matters as well: when precision increases, agents put more weight on the piece of information received, which is consistent with Morris and Shin's (2002) model. These results are found to be robust, and absent in placebo regressions. Finally, estimates suggest that the magnitude of the update depends on the distance between the signal that agents receive and their current expectations.

Suggested Citation

  • Arnildo da Silva Correa & Paulo Picchetti, 2016. "New Information and Updating of Market Experts’ Inflation Expectations," Working Papers Series 411, Central Bank of Brazil, Research Department.
    • Handle: RePEc:bcb:wpaper:411
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    Cited by:

    1. Cambara, Leilane de Freitas Rocha & Meurer, Roberto & Lima, Gilberto Tadeu, 2022. "Deviating from full rationality but not from theoretical consistency: The behavior of inflation expectations in Brazil," The Quarterly Review of Economics and Finance, Elsevier, vol. 84(C), pages 492-501.
    2. de Mendonça, Helder Ferreira & Vereda, Luciano & Araujo, Mateus de Azevedo, 2022. "What type of information calls the attention of forecasters? Evidence from survey data in an emerging market," Journal of International Money and Finance, Elsevier, vol. 129(C).
    3. Leilane de Freitas Rocha Cambara & Roberto Meurer, Gilberto Tadeu Lima, 2019. "Deviating from Perfect Foresight but not from Theoretical Consistency: The Behavior of Inflation Expectations in Brazil," Working Papers, Department of Economics 2019_36, University of São Paulo (FEA-USP).
    4. Wagner Piazza Gaglianone, 2017. "Empirical Findings on Inflation Expectations in Brazil: a survey," Working Papers Series 464, Central Bank of Brazil, Research Department.

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