How Rational are the Expected Inflation Rate in Australia?

Paradiso, Antonio and Rao, B. Bhaskara (2011): How Rational are the Expected Inflation Rate in Australia?

Abstract

This paper uses the methodology of Pearce (1979) and Bhagestani and Noori (2008) to show that the expected rate of inflation by the market participants in Australia is more rational than the household survey forecasts by the Melbourne Institute.

• Item Type: MPRA Paper
• Language: English
• Keywords: ARIMA Forecasts, Expected Inflation Rate, Survey data, Australia.
• Subjects: C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C12 - Hypothesis Testing: General; C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles

References

Baghestani, H. and Noori, E. (1988) On the rationality of the Michigan monthly survey of inflationary expectations, Economics Letters, 27, 333-335.

Box, G. E. P. and Jenkins, G. M. (1976) Time series analysis: Forecasting and control, San Francisco Holden-Day.

Nelson, C. R. (1972) The prediction performance of the FRB-MIT-PENN model of the U.S. Economy, American Economic Review, 62, 902-917.

Pearce, D. K. (1979) Comparing survey and rational measures of expected inflation: Forecast performance and interest rate effects, Journal of Money, Credit, and Banking, 11, 447-456.