Informational differences, adaptive learning, and inflation forecast bias

Qiang Chen and Zechen Yin

International Studies of Economics, 2025, vol. 20, issue 3, 236-259

Abstract: This work highlights a previously overlooked factor that contributes to bias in private inflation forecasts—ignorance of confidential monetary rules. Additionally, it examines how this ignorance indirectly affects policy rate settings. The model proposed reconciles biases in two key forecast sources: the inflation expectations from the Survey of Professional Forecasters and the Federal Reserve's Greenbook forecasts for the output gap. Moreover, the model investigates the impact of informational differences on monetary policy transmission and identifies clear conditions under which inflation rises following a contractionary monetary policy shock.

Date: 2025
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https://doi.org/10.1002/ise3.105

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Persistent link: https://EconPapers.repec.org/RePEc:wly:intsec:v:20:y:2025:i:3:p:236-259

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