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Comparison of Inflation Expectations from Surveys and Markets Across Different Horizons

Author

Listed:
  • Rocío Elizondo
  • Julio A. Carrillo

Abstract

This paper compares inflation expectations from surveys and markets across different horizons for Mexico, between 2000 and 2024. The analysis evalues descriptive statistics, bias, efficiency, discrepancy, convergence level, and response to inflation surprises. The results suggest that both expectations are generally biased, with exception of short-term market expectations. The two types of expectations are inefficient as they include past forecast errors and do not seem to incorporate all available information. The discrepancy between the two types of expectations is negatively related to the short-term interest rate across all horizons and positively related to inflation, its quadratic change, and exchange rate volatility for some horizons. Short- and medium-term expectations respond to inflation surprises, while long-term expectations do not. Finally, their estimated convergence level is more stable and with lower levels when information from both types of expectations is combined.

Suggested Citation

  • Rocío Elizondo & Julio A. Carrillo, 2025. "Comparison of Inflation Expectations from Surveys and Markets Across Different Horizons," Working Papers 2025-07, Banco de México.
    • Handle: RePEc:bdm:wpaper:2025-07
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    File URL: https://www.banxico.org.mx/publicaciones-y-prensa/documentos-de-investigacion-del-banco-de-mexico/%7B1E4595CF-4DBB-A80A-43FF-D0332C57806E%7D.pdf
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    More about this item

    Keywords

    Survey-based inflation expectations; Market-based inflation expectations; Forecast accuracy; Bias and efficiency; Discrepancy.;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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