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On the external validity of experimental inflation forecasts: A comparison with five categories of field expectations

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  • Camille Cornand

    (Centre National de la Recherche Scientifique (CNRS))

  • Paul Hubert

    (Observatoire français des conjonctures économiques)

Abstract

Establishing the external validity of laboratory experiments in terms of inflation forecasts is crucial for policy initiatives to be valid outside the laboratory. Our contribution is to document whether different measures of inflation expectations based on various categories of agents (participants to experiments, households, industry forecasters, professional forecasters, financial market participants and central bankers) share common patterns by analyzing: the forecasting performances of these different categories of data; the information rigidities to which they are subject; the determination of expectations. Overall, the different categories of forecasts exhibit common features: forecast errors are comparably large and autocorrelated, forecast errors and forecast revisions are predictable from past information, which suggests the presence of information frictions. Finally, the standard lagged inflation determinant of inflation expectations is robust to the data sets. There is nevertheless some heterogeneity among the six different sets. If experimental forecasts are relatively comparable to survey and financial market data, central bank forecasts seem to be superior.

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  • Camille Cornand & Paul Hubert, 2019. "On the external validity of experimental inflation forecasts: A comparison with five categories of field expectations," Sciences Po publications 03, Sciences Po.
  • Handle: RePEc:spo:wpmain:info:hdl:2441/6o4qdck7489u7pqc068eeuqsnq
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    Cited by:

    1. Bertasiute, Akvile & Massaro, Domenico & Weber, Matthias, 2020. "The behavioral economics of currency unions: Economic integration and monetary policy," Journal of Economic Dynamics and Control, Elsevier, vol. 112(C).
    2. Rholes, Ryan & Petersen, Luba, 2021. "Should central banks communicate uncertainty in their projections?," Journal of Economic Behavior & Organization, Elsevier, vol. 183(C), pages 320-341.
    3. Emilian DOBRESCU, 2020. "Self-fulfillment degree of economic expectations within an integrated space: The European Union case study," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 5-32, December.
    4. Kryvtsov, Oleksiy & Petersen, Luba, 2021. "Central bank communication that works: Lessons from lab experiments," Journal of Monetary Economics, Elsevier, vol. 117(C), pages 760-780.
    5. Madeira, Carlos, 2020. "Learning your own ability," Journal of Economic Dynamics and Control, Elsevier, vol. 121(C).
    6. Ryan Rholes & Luba Petersen, 2020. "Should central banks communicate uncertainty in their projections?," Discussion Papers dp20-01, Department of Economics, Simon Fraser University.
    7. Hommes, Cars & Massaro, Domenico & Weber, Matthias, 2019. "Monetary policy under behavioral expectations: Theory and experiment," European Economic Review, Elsevier, vol. 118(C), pages 193-212.

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    More about this item

    Keywords

    Inflation expectations; Experimental forecasts; Survey forecasts; Market -based forecasts; Central bank forecasts;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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