The information content of market-based measures for the long-term inflation expectations of professionals: evidence from a midas analysis

Ahmed Hanoma and Dieter Nautz

Applied Economics, 2019, vol. 51, issue 51, 5623-5636

Abstract: Long-term inflation expectations taken from the Survey of Professional Forecasters are a major source of information for monetary policy. Unfortunately, they are published only on a quarterly basis. This article investigates the daily information content of market-based measures, such as inflation-linked swaps and breakeven inflation rates, for the next survey outcome. Using a mixed data sampling approach, we find that professionals account for the daily dynamics of market-based measures when they submit their long-term inflation expectations. We propose a daily indicator of professionals’ inflation expectations that outperforms alternative indicators that ignore the high-frequency dynamics of market-based measures. To illustrate the usefulness of the new indicator, we provide new evidence on the (re-)anchoring of U.S. inflation expectations.

Date: 2019
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DOI: 10.1080/00036846.2019.1616071

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