Rationality of survey based inflation expectations: A study of 18 emerging economies’ inflation forecasts

Fazlul Miah, M. Saifur Rahman and Khalid Albinali

Research in International Business and Finance, 2016, vol. 36, issue C, 158-166

Abstract: This study investigates rationality of inflation expectations of 18 emerging economies’ inflation rates using 10 years (2001–2011) of one month-ahead consensus survey forecasts of annual inflation rate from a data source previously unexploited by the researchers. Given the nature of the data, we use the panel method to assess the relationship between the actual and the expected inflation rates. We perform various diagnostic tests to identify the appropriate panel test for the data by applying the most recent econometric techniques. We use a recently developed panel regression method based on simple OLS technique but derive standard errors corrected for serial correlation, panel heterogeneity and cross-sectional dependence. Empirical results show that forecasters’ expectations are strongly unbiased, and efficient to most commonly used sources of information including money supply and oil prices. This research fills the gap in the existing literature by studying a large cross section of emerging economies inflation rates as there is no comprehensive study on the issue for these economies.

Keywords: Inflation forecasts; Consensus survey; Rational expectations; Cross-sectional dependence; Panel estimation (search for similar items in EconPapers)
JEL-codes: E31 E37 F47 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:36:y:2016:i:c:p:158-166

DOI: 10.1016/j.ribaf.2015.09.029

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