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Are subjective distributions in inflation expectations symmetric?

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Listed:
  • Nikola Mirkov
  • Andreas Steinhauer

Abstract

We conducted an anonymous survey in December 2013 asking around 200 economists worldwide to provide an interval (a to b) of average inflation in the US expected "over the next two years". The respondents were also instructed to give a probability of inflation being higher or lower than the mid-interval (a+b)/2. The aggregate distribution of inflation expectations we obtain closely resembles the outcome of the Survey of Professional Forecasters for 1Q2014. More importantly, we find that the subjective probability mass on either side of the mid-interval is not statistically different from 0.5, which means that the subjective distributions are symmetric. Our results align well with several papers evaluating the Survey of Professional Forecasters or similar data sets and finding no significant departures from symmetry.

Suggested Citation

  • Nikola Mirkov & Andreas Steinhauer, 2014. "Are subjective distributions in inflation expectations symmetric?," ECON - Working Papers 173, Department of Economics - University of Zurich.
    • Handle: RePEc:zur:econwp:173
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    References listed on IDEAS

    as
    1. Clements, Michael P., 2010. "Explanations of the inconsistencies in survey respondents' forecasts," European Economic Review, Elsevier, vol. 54(4), pages 536-549, May.
    2. Lahiri, Kajal & Teigland, Christie & Zaporowski, Mark, 1988. "Interest Rates and the Subjective Probability Distribution of Inflation Forecasts," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 20(2), pages 233-248, May.
    3. Garcí­a, Juan Angel & Manzanares, Andrés, 2007. "What can probability forecasts tell us about inflation risks?," Working Paper Series 825, European Central Bank.
    4. Wändi Bruine De Bruin & Charles F. Manski & Giorgio Topa & Wilbert van der Klaauw, 2011. "Measuring consumer uncertainty about future inflation," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 26(3), pages 454-478, April.
    5. Yasutomo Murasawa, 2013. "Measuring Inflation Expectations Using Interval-Coded Data," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 75(4), pages 602-623, August.
    6. Engelberg, Joseph & Manski, Charles F. & Williams, Jared, 2009. "Comparing the Point Predictions and Subjective Probability Distributions of Professional Forecasters," Journal of Business & Economic Statistics, American Statistical Association, vol. 27, pages 30-41.
    7. Andersson, Magnus & Hofmann, Boris, 2009. "Gauging the effectiveness of quantitative forward guidance: evidence from three inflation targeters," Working Paper Series 1098, European Central Bank.
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    More about this item

    Keywords

    Inflation expectations; subjective probability distributions;

    JEL classification:

    • C42 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Survey Methods
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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