The forecasting horizon of inflationary expectations and perceptions in the EU – Is it really 12 months?

Lars Jonung () and Staffan Lindén

No 435, European Economy - Economic Papers 2008 - 2015 from Directorate General Economic and Financial Affairs (DG ECFIN), European Commission

Abstract: We use survey based inflationary expectations to explore the forecasting horizons implicitly used by the respondents to questions about the expected rate of inflation during the coming 12 months. We examine the forecast errors, the mean error and the RMSEs, to study if the forecast horizon is truly 12 months as implied by the questionnaires. Our working hypothesis is that the forecast error has a U-shaped pattern, reaching its lowest value on the 12-month horizon. Our exploratory study reveals large differences across countries. For most countries, we get the expected U-shaped outcome for the forecast errors. The horizon implicitly used by respondents when answering the questions is not related to the explicit time horizon of the questionnaire. On average respondents use the same horizon when answering both questions.

JEL-codes: C33 E31 E32 E37 E58 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2010-12
New Economics Papers: this item is included in nep-cba, nep-eec, nep-for and nep-mon
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Related works:
Working Paper: The forecasting horizon of inflationary expectations and perceptions in the EU. Is it really 12 months? (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:euf:ecopap:0435

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