Do Household Expectations Help Predict Inflation?

Luis Brandão-Marques, R. Gaston Gelos (), David Hofman, Julia Otten, Gurnain Pasricha and Zoe Strauss
Authors registered in the RePEc Author Service: Luis Brandao Marques

No 2023/224, IMF Working Papers from International Monetary Fund

Abstract: We examine whether changes in the distribution of household inflation expectations contain information on future inflation. We first discuss recent shifts in micro data from the US, UK, Germany, and Canada. We then zoom in on the US to explore econometrically whether distributional characteristics help predict future inflation. We find that the shape of the distribution of household expectations does indeed help predict one-year-ahead CPI inflation. Variance and skewness of household expectations’ distributions add predictive power beyond and above the median, especially in periods of high inflation. Remarkably, qualitatively, these results hold when including market-based measures and moments of the distribution of professional forecasts.

Keywords: Inflation; inflation expectations; survey expectations; household expectations; inflation expectation; decreasing inflation dummy; household expectation; moments model; one-year expectations in the US; Global (search for similar items in EconPapers)
Pages: 32
Date: 2023-10-27
New Economics Papers: this item is included in nep-mon
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Working Paper: Do Household Expectations Help Predict Inflation? (2024)
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