Driving Forces of Inflation Expectations

Byeongdeuk Jang and Young Se Kim
Additional contact information
Byeongdeuk Jang: Sungkyunkwan University
Young Se Kim: Sungkyunkwan University

Korean Economic Review, 2017, vol. 33, 207-237

Abstract: This paper addresses some important issues regarding the nature of inflation expectations. By utilizing measures of inflation expectations formed by consumers and professionals, a series of empirical applications are performed to identify main driving forces of variations in inflation expectations. Tests of forecast efficiency consistently indicate that survey expectations are not rational, and thus the expectations of real-world economic actors, not rational agents in a model, are found to be what matter for price setting. As a logical consequence of these findings, we explore potential factors agents rely on when forecasting inflation by looking more closely on price changes in consumption expenditure categories as well as some key macroeconomic aggregates. Empirical results suggest that agents think differently how aggregate inflation evolves mainly due to the fact that each type of agents employs a distinct set of information, which can be interpreted as a dominant source of disagreement among agents.

Keywords: Inflation; Survey Expectations; Disagreement; Forecast Error (search for similar items in EconPapers)
JEL-codes: C53 E31 E32 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://keapaper.kea.ne.kr/RePEc/kea/keappr/KER-20171231-33-2-01.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kea:keappr:ker-20171231-33-2-01

Access Statistics for this article

Korean Economic Review is currently edited by Kyung Hwan Baik

More articles in Korean Economic Review from Korean Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by KEA ().