Forecasting inflation using survey expectations and target inflation: Evidence for Brazil and Turkey

Sumru Altug and Cem Çakmaklı

International Journal of Forecasting, 2016, vol. 32, issue 1, 138-153

Abstract: In this paper, we formulate a statistical model of inflation that combines data on survey expectations with the inflation target set by central banks. Our model produces inflation forecasts that are aligned with survey expectations, thus integrating the predictive power of the survey expectations into the baseline model. Furthermore, we incorporate the inflation target set by the monetary authority in order to examine the effectiveness of monetary policy in forming inflation expectations, and therefore, in predicting inflation accurately. The results indicate that the predictive power of the proposed framework is superior to that of the model without survey expectations, as well as to the performances of several popular benchmarks, such as the backward- and forward-looking Phillips curves and a naïve forecasting rule.

Keywords: Inflation forecasting; State space models; Survey-based expectation; Inflation targeting; Term structure of inflation expectations (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (26)

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Working Paper: Forecasting Inflation using Survey Expectations and Target Inflation: Evidence for Brazil and Turkey (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfor:v:32:y:2016:i:1:p:138-153

DOI: 10.1016/j.ijforecast.2015.03.010

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