The role of forward- and backward-looking information for inflation expectations formation

Paul Hubert and Harun Mirza
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Harun Mirza: Centre de recherche de la Banque Centrale européenne - Banque Centrale Européenne

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Abstract: Assuming that private forecasters learn inflation dynamics to form their inflation expectations and that they believe a hybrid New Keynesian Phillips curve (NKPC) to capture the true data-generating process of inflation, we aim at establishing the role of backward- and forward-looking information in the inflation expectation formation process. We find that longer term expectations are crucial in shaping shorter horizon expectations. While the influence of backward-looking information seems to diminish over time, we do not find evidence of a structural break in the expectation formation process of professional forecasters. Our results further suggest that theweight put on longer term expectations does not solely reflect amean-reverting process to trend inflation. Rather, it might also capture beliefs about the central bank's long-run inflation target and its credibility to achieve inflation stabilization.

Keywords: Inflation; New keynesian phillips curve; Survey expectations (search for similar items in EconPapers)
Date: 2019-03-23
Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-03403616
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Citations: View citations in EconPapers (4)

Published in Journal of Forecasting, 2019, 38 (8), pp.733 - 748. ⟨10.1002/for.2596⟩

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Journal Article: The role of forward‐ and backward‐looking information for inflation expectations formation (2019)
Working Paper: The role of forward- and backward-looking information for inflation expectations formation (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03403616

DOI: 10.1002/for.2596

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