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The case for higher frequency inflation expectations

Authors
Publication Date
Keywords
  • C51 - Model Construction And Estimation
  • C52 - Model Evaluation
  • Validation
  • And Selection
  • C12 - Hypothesis Testing: General
  • G00 - General
  • E47 - Forecasting And Simulation: Models And Applications
  • D84 - Expectations
  • Speculations
  • E58 - Central Banks And Their Policies
  • E30 - General
  • C02 - Mathematical Methods
  • G14 - Information And Market Efficiency
  • Event Studies
  • C82 - Methodology For Collecting
  • Estimating
  • And Organizing Macroeconomic Data
  • E31 - Price Level
  • Inflation
  • Deflation
  • E44 - Financial Markets And The Macroeconomy
  • C32 - Time-Series Models
  • Dynamic Quantile Regressions
  • Dynamic Treatment Effect Models
  • C13 - Estimation: General
  • D03 - Behavioral Economics
  • Underlying Principles
  • C53 - Forecasting And Prediction Methods
  • Simulation Methods
  • C20 - General
  • C22 - Time-Series Models
  • Dynamic Quantile Regressions
  • Dynamic Treatment Effect Models
  • C42 - Survey Methods
  • D83 - Search
  • Learning
  • Information And Knowledge
  • Communication
  • Belief
  • C81 - Methodology For Collecting
  • Estimating
  • And Organizing Microeconomic Data
  • G10 - General
  • E37 - Forecasting And Simulation: Models And Applications
  • C01 - Econometrics

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.

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