Inattention, Disagreement and Internal (In)Consistency of Inflation Forecasts

Fernando Borraz and Laura Zacheo ()
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Laura Zacheo: Banco Central del Uruguay

No 2018007, Documentos de trabajo from Banco Central del Uruguay

Abstract: This paper uses a rich and unique data set with eight years of monthly inflation expectation and subjective probability distributions to analyze the expectation formation process of firms in Uruguay. First, firms exhibit a very high degree of attention to current inflation conditions which we link to the countries' historical inflation experience. Second, the forecasters fail to incorporate all of the available information and firms' forecasts are more accurate than those of professional forecasters in Uruguay. Third, there is disagreement between forecasters at the short run but also at the long run and the disagreement is higher for forecasters that revise than for forecasters that do not revise. Therefore, there must be some noise or friction that prevents agents that changes prices to get access to perfect information. Fourth, the disagreement is not fully explained by differences in the information set because one in five forecasts is not internal consistent.

Keywords: inflation expectation; inattention; disagreement; subjective probability distribution (search for similar items in EconPapers)
JEL-codes: D84 E31 E58 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2018
New Economics Papers: this item is included in nep-for, nep-lam and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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