Do macro variables, asset markets, or surveys forecast inflation better?

Ang, Andrew; Bekaert, Geert; Wang, Min

doi:10.1016/j.jmoneco.2006.04.006

Cited by 757 publications

(315 citation statements)

References 79 publications

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“…(Note 16) This result is also reflected in the values of Theil's U being smaller than one for most performance tests. Diebold-Mariano test statistics shows that the forecasting performance of survey-based inflation expectations is somewhat better than that of statistical time series processes (in line with the findings in Ang, Bekaert, and Wei (2007) for the United States), while inflation swap-based expectations are significant for improving the forecast performance, in particular for longer horizons. However, it needs to be stressed that for most cases, although inflation swaps and SPF have lower forecasting errors, the difference in performance is not statistically significant for the considered samples.…”

Section: Methodology and Resultssupporting

confidence: 77%

“…Assessing the actual performance of various measures of inflation expectations is important given the key role ascribed to inflation expectations in the inflation generating process. The usefulness of survey-based measures of inflation expectations in forecasting inflation has been documented in Ang, Bekaert, and Wei (2007). In a similar vein, Gil-Alana, Moreno, and Perez de Gracia (2012) report that, for the United States, survey-based expectations outperform standard time series models.…”

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confidence: 90%

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Inflation Forecasts: Are Market-Based and Survey-Based Measures Informative?

Grothe¹,

Meyler²

2017

IJFR

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This paper analyses the predictive power of market-based and survey-based inflation expectations for actual inflation. We use the data on inflation swaps and the forecasts from the Survey of Professional Forecasters for the euro area and the United States. The results show that both market-based and survey-based measures have a non-negligible predictive power for inflation developments, as compared to statistical benchmark models. Therefore, for horizons of one and two years ahead, market-based and survey-based inflation expectations actually convey information on future inflation developments. Keywords: inflation, expectations, forecasting, swaps, surveys, market, professional forecasters 1. Introduction Models used for inflation forecasting are usually based on statistical time series properties of inflation and on information regarding economic variables. This paper analyses whether the information on inflation expectations has predictive power for actual inflation. We show that short-term inflation expectations derived from survey and market data for the euro area and United States are informative predictors of future inflation developments. For market-based measures of inflation expectations, the paper focuses on inflation-linked swaps. In these contracts, a fixed inflation swap rate is exchanged against the realised inflation rate over an agreed period of time. The fixed leg of the swap can be thus interpreted as a measure of investors' inflation expectations over a certain contract duration. For survey-based measures of inflation expectations, the paper focuses on the results from the Survey of Professional Forecasters conducted by the European Central Bank for the euro area and the Federal Reserve Bank of Philadelphia for the United States. A relatively large panel of respondents in this survey assures a good data quality, as compared to other surveys available on inflation. With respect to the forecast horizon, we focus on the shorter-term measures, to ensure that the analysis of the forecasting performance is statistically feasible, given the size of the samples. This paper contributes to the literature by providing evidence that market-based and survey-based measures of inflation expectations are informative sources of information on future inflation. Assessing the actual performance of various measures of inflation expectations is important given the key role ascribed to inflation expectations in the inflation generating process. The usefulness of survey-based measures of inflation expectations in forecasting inflation has been documented in Ang, Bekaert, and Wei (2007). In a similar vein, Gil-Alana, Moreno, and Perez de Gracia (2012) report that, for the United States, survey-based expectations outperform standard time series models. However, in a more recent study, Trehan (2015) shows that the forecast accuracy of household and professional inflation surveys has deteriorated. With respect to the role of financial indicators for forecasting inflation and output, Stock and Watson (2003) fi...

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Section: Methodology and Resultssupporting

confidence: 77%

mentioning

confidence: 90%

Inflation Forecasts: Are Market-Based and Survey-Based Measures Informative?

Grothe¹,

Meyler²

2017

IJFR

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“…Its advantages are: the forecast accuracy (specialists' and consumers' expectations are better predictors of a year ahead inflation), there is no need of any a priori assumption (which is needed in a model based forecasts), there is no contamination of the data by transaction costs, risk premium, and taxation (which is characteristic of financial assets prices) (Ang, 2007). The survey based expectations are also used in this study.…”

Section: Literature Overviewmentioning

confidence: 99%

Central Banks Inflation Forecast and Expectations. A Comparative Analysis

Szyszko¹

2017

Prague Economic Papers

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The question on the inflation expectations management is one of the most important ones from the central bank's point of view. The inflation forecast can be a helpful tool of managing expectations. If it actually is, the interdependences of the inflation forecast and expectations can be observed. The existence of such interdependences opens the field for determining the preconditions that might support expectations formation. The hypothesis assumes that associations of inflation forecasts and inflation expectations depend on the central bank's credibility and consistency in inflation forecast targeting. The research covers the Czech National Bank, the National Bank of Hungary, the National Bank of Poland and Sveriges Riksbank. The research combines qualitative and quantitative methods. The research uses survey-based expectations quantified with probabilistic method. The main finding is that the relatively high level of credibility and consistency in inflation forecast targeting is not sufficient to achieve strong interdependences of inflation forecast and expectations.

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“…On the other hand, economic theory based forecasting such as Phillips curve, Term structure and asset pricing models are also successful in the inflation forecasting. However, in practice, the best forecasts are still the subjective ones, which come from survey such as Blue Chip, SPF and Greenbook, this fact has been found by a number of research, see in Ang, Bekaert, and Wei (2007), Faust and Wright (2013). With this regard, I use survey of professional forecasters (SPF) as major benchmark to compare with neural network forecasting, however, I will list some major methods as references.…”

Section: Introductionmentioning

confidence: 99%