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Inflation expectation dynamics:the role of past, present and forward looking information

Listed author(s):
  • Paul Hubert

    ()

    (Ofce,Sciences-po)

  • Harun Mirza

    ()

    (European Central Bank)

Assuming that private agents need to learn inflation dynamics to form their inflation expectations and that they believe a hybrid New-Keynesian Phillips Curve (NKPC) is the true data generating process of inflation, we aim at establishing the role of forward-looking information in inflation expectation dynamics. We find that longer term expectations are crucial in shaping shorter-horizon expectations. Professional forecasters put a greater weight on forward-looking information presumably capturing beliefs about the central bank inflation target or trend inflation while lagged inflation remains significant. Finally,the NKPC-based inflation expectations model fits well for professional forecasts in contrast to consumers.

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File URL: http://www.ofce.sciences-po.fr/pdf/dtravail/WP2014-07.pdf
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Paper provided by Observatoire Francais des Conjonctures Economiques (OFCE) in its series Documents de Travail de l'OFCE with number 2014-07.

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Date of creation: Mar 2014
Handle: RePEc:fce:doctra:1407
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