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The case for higher frequency inflation expectations

Giselle Guzman

MPRA Paper from University Library of Munich, Germany

Abstract: I present evidence that higher frequency measures of inflation expectations outperform lower frequency measures of inflation expectations in tests of accuracy, predictive power, and rationality. For decades, the academic literature has focused on three survey measures of expected inflation: the Livingston Survey, the Survey of Professional Forecasters, and the Michigan Surveys of Consumers. While these measures have been useful in developing models of forecasting inflation, the data are low frequency measures that are anachronistic in the modern era of high frequency and real-time data. I present a collection of 37 different measures of inflation expectations, including many previously unexploited monthly and real-time measures of inflation expectations. These higher frequency measures tend to outperform the standard three low frequency survey measures in tests of accuracy, predictive power, and rationality, indicating that there are benefits to using higher frequency measures of inflation expectations. Out of sample forecasts confirm the findings.

Keywords: inflation; expectations; sentiment; TIPS; surveys; forecasting; Michigan; SPF; Livingston; time-series; econometrics; inflation; predictive power; out-of-sample forecasts; high frequency; Rational Expectations Hypothesis; Efficient Markets Hypothesis; hypothesis testing; inflation forecasting (search for similar items in EconPapers)
JEL-codes: C01 C02 C12 C13 C20 C22 C32 C42 C51 C52 C53 C81 C82 D03 D83 D84 E30 E31 E37 E44 E47 E58 G00 G10 G14 (search for similar items in EconPapers)
Date: 2011-06-29
New Economics Papers: this item is included in nep-cba, nep-for and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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https://mpra.ub.uni-muenchen.de/36656/1/MPRA_paper_36656.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/40204/2/MPRA_paper_40204.pdf revised version (application/pdf)

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