How Anchored are Inflation Expectations in Asia? Evidence from Surveys of Professional Forecasters

Abstract

This paper investigates how solidly inflation expectations are anchored in Asia, using inflation forecasts by professional forecasters from Consensus Economics. We examine inflation expectations using three different methods. First, we assess the behaviour of longer-term (both five-year-ahead and two-year-ahead) forecasts in the different economies over time. Second, we assess the uncertainty related to inflation expectations by computing an indicator of forecast disagreement. Third, we use a novel method to model the behaviour of forecasts over different horizons, capturing the tendency for inflation forecasts to converge towards actual inflation as the forecast horizon becomes shorter. This analytically simple method is based on an exponential decay function, and provides a convenient way to parameterise the degree to which inflation expectations are anchored. Overall, we find that inflation expectations generally appear to be well anchored in the region. We close with some policy implications.

Full publication: Globalisation, Inflation and Monetary Policy in Asia and the Pacific