Disagreement and Biases in Inflation Expectations

Carlos Capistrán and Allan Timmermann
Authors registered in the RePEc Author Service: Carlos Capistrán ()

No 3, Computing in Economics and Finance 2006 from Society for Computational Economics

Abstract: Recent empirical work documents substantial disagreement in inflation expectations obtained from survey data. Furthermore, the extent of such disagreement varies systematically over time in a way that reflects the level and variance of current inflation. This paper offers a simple explanation for these facts based on asymmetries in the forecasters' costs of over- and under-predicting inflation. Our model implies biased forecasts with positive serial correlation in forecast errors and a cross-sectional dispersion that rises with the level and the variance of the inflation rate. It also implies that biases in forecasters' ranks should be preserved over time and that forecast errors at different horizons can be predicted through the spread between the short- and long-term variance of inflation. We find empirically that these patterns are present in inflation forecasts from the Survey of Professional Forecasters

Keywords: Inflation Expectations; Heterogeneity; Asymmetric Loss; Forecast Evaluation (search for similar items in EconPapers)
JEL-codes: C53 E31 (search for similar items in EconPapers)
Date: 2006-07-04
References: Add references at CitEc
Citations: View citations in EconPapers (5)

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Journal Article: Disagreement and Biases in Inflation Expectations (2009)
Working Paper: Disagreement and Biases in Inflation Expectations (2008)
Working Paper: Disagreement and Biases in Inflation Expectations (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sce:scecfa:3

Access Statistics for this paper

More papers in Computing in Economics and Finance 2006 from Society for Computational Economics Contact information at EDIRC.
Bibliographic data for series maintained by Christopher F. Baum ().