Guzman, Giselle C. (2010): The case for higher frequency inflation expectations.
This is the latest version of this item.
Download (297kB) | Preview
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.
|Item Type:||MPRA Paper|
|Original Title:||The case for higher frequency inflation expectations|
|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|
|Subjects:||C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C51 - Model Construction and Estimation
C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C52 - Model Evaluation, Validation, and Selection
C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C12 - Hypothesis Testing: General
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E47 - Forecasting and Simulation: Models and Applications
D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D84 - Expectations ; Speculations
E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies
C - Mathematical and Quantitative Methods > C0 - General > C02 - Mathematical Methods
G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency ; Event Studies ; Insider Trading
E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level ; Inflation ; Deflation
C - Mathematical and Quantitative Methods > C8 - Data Collection and Data Estimation Methodology ; Computer Programs > C82 - Methodology for Collecting, Estimating, and Organizing Macroeconomic Data ; Data Access
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy
D - Microeconomics > D0 - General > D03 - Behavioral Microeconomics: Underlying Principles
C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C13 - Estimation: General
C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C53 - Forecasting and Prediction Methods ; Simulation Methods
?? C42 ??
C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes
D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D83 - Search ; Learning ; Information and Knowledge ; Communication ; Belief ; Unawareness
E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E37 - Forecasting and Simulation: Models and Applications
C - Mathematical and Quantitative Methods > C0 - General > C01 - Econometrics
|Depositing User:||Giselle Guzman|
|Date Deposited:||20. Jul 2012 20:52|
|Last Modified:||11. May 2015 18:02|
Guzman, Giselle (2011). "Internet Search Behavior as an Economic Forecasting Tool: The Case of Inflation Expectations." Journal of Economic and Social Measurement, Volume 36, Number 3, December 2011.
Stiglitz, Joseph (2011). "Rethinking Macroeconomics: What Failed, and How to Repair It." Journal of the European Economic Association, Volume 9, Issue 4, pp. 591-645, August 2011.
Stiglitz, Joseph (2011). "An Agenda for Reforming Economic Theory." http://economistsview.typepad.com/files/session-3---stiglitz_agenda_for_reform.pdf
Ang, A., Bekaert, G., and Wei, M. (2007). Do macro variables, asset markets, or surveys forecast inflation better? Journal of Monetary Economics, 54 (2007), pp. 1163-1212.
Calvo, G. (1983). Staggered Prices in a Utility-Maximizing Framework. Journal of Monetary Economics, 12 (1983), pp. 383-398.
Carroll, C. (2003). Macroeconomic Expectations of Households and Professional Forecasters. The Quarterly Journal of Economics, Vol. 118, No. 1 (Feb. 2003), pp. 269-298.
Engle, Robert F., and Granger, C.W.J. (1987). Co-Integration and Error Correction: Representation, Estimation, and Testing. Econometrica, Vol. 55, March, pp. 251-276.
Giannone, D., Reichlin, L., and Small, D. (2008). Nowcasting: The real-time informational content of macroeconomic data. Journal of Monetary Economics, 55 (2008), pp. 665-676.
Gramlich, E.M. (1983). Models of Inflation Expectations Formation: A Comparison of Household and Economist Forecasts. Journal of Money, Credit, and Banking, Vol. 15, No. 2, May 1983, pp. 155-173.
Granger, C.W.J., and Newbold, P. (1977). Forecasting Economic Time Series, Orlando, FL. Academic Press.
Grant, A.P. and Thomas, L.B. (1999). Inflationary expectations and rationality revisited. Economics Letters, Vol. 62, pp. 331-338.
Guzmán, Giselle (2003). GDP Growth Signals, Investor Psychology, and Hedging Pressure: A Multivariate Approach to Forecasting Returns on the S&P500 Index. Manuscript, The Wharton School, University of Pennsylvania, April, 2003.
Guzmán, Giselle (2008). Using Sentiment Surveys to Predict GDP Growth and Stock Returns. The Making of National Economic Forecasts, edited by Lawrence R. Klein. Edward Elgar Publishing, Ltd. London, 2009.
Harvey, D., Leybourne, S., and Newbold, P. (1997). Testing the equality of prediction mean squared errors. International Journal of Forecasting, 13, (1997), pp. 281-291.
Lanne, M., Luoma, A. and Luoto, J. (2009). A naïve sticky information model of households’ inflation expectations. Journal of Economic Dynamics & Control, 33 (2009), pp. 1332-1344.
Mankiw, G. and Reis, R. (2002). Sticky Information versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve. The Quarterly Journal of Economics, Vol. 117, No. 4 (Nov. 2002), pp. 1295-1328.
Mariano, R. and Preve, D. (2008). Statistical Tests for Multiple Forecast Comparison. Presentation, T.W. Anderson Conference, Stanford University, 2008.
Mehra, Y.P. (2002). Survey Measures of Expected Inflation: Revisiting the Issues of Predictive Content and Rationality. Federal Reserve Bank of Richmond Economic Quarterly, Vol. 88/3, Summer 2002, pp. 17-35.
Morgan, W.A. (1939). A Test for Significance of the Difference Between the Two Variances in a Sample From a Normal Bivariate Population. Biometrika, 31, 13-19.
Thomas, L.B. (1999). Survey Measures of Expected U.S. Inflation. The Journal of Economic Perspectives, Vol. 13, No. 4, Autumn 1999, pp. 125-144.
Stock, J.H. and Watson, M.W. (1999). Forecasting inflation. Journal of Monetary Economics, 44 (1999), pp. 293-335.
Stock, J.H. and Watson, M.W. (2002). Macroeconomic Forecasting Using Diffusion Indexes. Journal of Business & Economic Statistics. Vol. 20, No. 2 (April 2002), pp. 147-162.
Woodford, M. (2003). Interest and Prices. Princeton University Press, Princeton, NJ.
Available Versions of this Item
The case for higher frequency inflation expectations. (deposited 22. Feb 2012 03:08)
- The case for higher frequency inflation expectations. (deposited 20. Jul 2012 20:52) [Currently Displayed]