Understanding Survey Based Inflation Expectations
38 Pages Posted: 18 Apr 2017
Date Written: 2017-04
Survey based measures of inflation expectations are not informationally efficient yet carry important information about future inflation. This paper explores the economic significance of informational inefficiencies of survey expectations. A model selection algorithm is applied to the inflation expectations of households and professionals using a large panel of macroeconomic data. The expectations of professionals are best described by different indicators than the expectations of households. A forecast experiment finds that it is difficult to exploit informational inefficiencies to improve inflation forecasts, suggesting that the economic cost of the surveys' deviation from rationality is not large.
Keywords: Informational efficiency, Phillips curve, Survey based inflation expectations, Boosting, Inflation forecasting, Machine learning
JEL Classification: C53, E31, E37
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