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Forecasting inflation via electronic markets: Results from a prototype market

  • Berlemann, Michael

Forecasts of macroeconomic variables as the inflation rate serve as important guidelines for the private as well as the public sector. At least central banks that adopted an inflation targeting regime are in urgent need of high quality inflation forecasts. Accurate inflation forecasts are also needed within private sector wage negotiations. In this paper we present a new method to predict future inflation via conducting electronic markets. We show at the example of a prototype market how the market data of such an experimental market can be used to generate predictions of the future inflation rate. We also show that the market data provide important evidence on the distribution of inflation expectations.

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Paper provided by Dresden University of Technology, Faculty of Business and Economics, Department of Economics in its series Dresden Discussion Paper Series in Economics with number 06/01.

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Date of creation: 2001
Date of revision:
Handle: RePEc:zbw:tuddps:0601
Contact details of provider: Postal: 01062 Dresden
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  1. Keith Sill, 1999. "Forecasts, indicators and monetary policy," Business Review, Federal Reserve Bank of Philadelphia, issue May, pages 3-14.
  2. Lars E.O. Svensson, 1993. "The Simplest Test of Inflation Target Credibility," NBER Working Papers 4604, National Bureau of Economic Research, Inc.
  3. repec:sae:niesru:v:167:y::i:1:p:106-112 is not listed on IDEAS
  4. Söderlind, Paul & Svensson, Lars E.O., 1996. "New Techniques to Extract Market expectations from Financial Instruments," SSE/EFI Working Paper Series in Economics and Finance 142, Stockholm School of Economics.
  5. Frederic S. Mishkin, 1989. "A Multi-Country Study of the Information in the Term Structure about Future Inflation," NBER Working Papers 3125, National Bureau of Economic Research, Inc.
  6. Beckmann, Klaus & Werding, Martin, 1996. "'Passauer Wahlborse': Information Processing in a Political Market Experiment," Kyklos, Wiley Blackwell, vol. 49(2), pages 171-204.
  7. Dean Croushore, 1993. "Introducing: the survey of professional forecasters," Business Review, Federal Reserve Bank of Philadelphia, issue Nov, pages 3-15.
  8. Dean Croushore, 1996. "Inflation forecasts: how good are they?," Business Review, Federal Reserve Bank of Philadelphia, issue May, pages 15-25.
  9. Forsythe, Robert & Forrest Nelson & George R. Neumann & Jack Wright, 1992. "Anatomy of an Experimental Political Stock Market," American Economic Review, American Economic Association, vol. 82(5), pages 1142-61, December.
  10. Frederic S. Mishkin, 1988. "What Does the Term Structure Tell Us About Future Inflation?," NBER Working Papers 2626, National Bureau of Economic Research, Inc.
  11. Gramlich, Edward M, 1983. "Models of Inflation Expectations Formation: A Comparison of Household and Economist Forecasts," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 15(2), pages 155-73, May.
  12. John M. Roberts, 1998. "Inflation expectations and the transmission of monetary policy," Finance and Economics Discussion Series 1998-43, Board of Governors of the Federal Reserve System (U.S.).
  13. C. A. E. Goodhart, 2001. "The Inflation Forecast," National Institute Economic Review, National Institute of Economic and Social Research, vol. 175(1), pages 59-66, January.
  14. Robert Forsythe & Murray Frank & V. Krishnamurthy & Thomas W. Ross, 1995. "Using Market Prices to Predict Election Results: The 1993 UBC Election Stock Market," Canadian Journal of Economics, Canadian Economics Association, vol. 28(4a), pages 770-93, November.
  15. Batchelor, R A, 1986. "Quantitative v. Qualitative Measures of Inflation Expectations," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 48(2), pages 99-120, May.
  16. Jansson, Per & Vredin, Anders, 2001. "Forecast-based Monetary Policy in Sweden 1992-1998: A View from Within," Working Paper Series 120, Sveriges Riksbank (Central Bank of Sweden).
  17. Flood, Robert P & Hodrick, Robert J, 1990. "On Testing for Speculative Bubbles," Journal of Economic Perspectives, American Economic Association, vol. 4(2), pages 85-101, Spring.
  18. Bomberger, William A, 1996. "Disagreement as a Measure of Uncertainty," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(3), pages 381-92, August.
  19. Aaron Drew & Ben Hunt, 1998. "The Forecasting and Policy System: preparing economic projections," Reserve Bank of New Zealand Discussion Paper Series G98/7, Reserve Bank of New Zealand.
  20. Berlemann, Michael & Schmidt, Carsten, 2001. "Predictive accuracy of political stock markets: Empirical evidence from an European perspective," Dresden Discussion Paper Series in Economics 05/01, Dresden University of Technology, Faculty of Business and Economics, Department of Economics.
  21. Estrella, Arturo & Mishkin, Frederic S., 1997. "The predictive power of the term structure of interest rates in Europe and the United States: Implications for the European Central Bank," European Economic Review, Elsevier, vol. 41(7), pages 1375-1401, July.
  22. Mishkin, Frederic S., 1991. "A multi-country study of the information in the shorter maturity term structure about future inflation," Journal of International Money and Finance, Elsevier, vol. 10(1), pages 2-22, March.
  23. Pearce, Douglas K, 1979. "Comparing Survey and Rational Measures of Expected Inflation: Forecast Performance and Interest Rate Effects," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(4), pages 447-56, November.
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