Do Household Expectations Help Predict Inflation?

By Luis Brandão-Marques, Gaston Gelos, David J Hofman, Julia Otten, Gurnain Kaur Pasricha, Zoe Strauss

October 27, 2023

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Format: Chicago

Luis Brandão-Marques, Gaston Gelos, David J Hofman, Julia Otten, Gurnain Kaur Pasricha, and Zoe Strauss. Do Household Expectations Help Predict Inflation?, (USA: International Monetary Fund, 2023) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

We examine whether changes in the distribution of household inflation expectations contain information on future inflation. We first discuss recent shifts in micro data from the US, UK, Germany, and Canada. We then zoom in on the US to explore econometrically whether distributional characteristics help predict future inflation. We find that the shape of the distribution of household expectations does indeed help predict one-year-ahead CPI inflation. Variance and skewness of household expectations’ distributions add predictive power beyond and above the median, especially in periods of high inflation. Remarkably, qualitatively, these results hold when including market-based measures and moments of the distribution of professional forecasts.

Subject: Economic forecasting, Inflation, Prices

Keywords: Decreasing inflation dummy, Global, Household expectation, Household expectations, Inflation, Inflation expectation, Inflation expectations, Moments model, One-year expectations in the US, Survey expectations

Publication Details

Pages:

32
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2023/224
Stock No:

WPIEA2023224
ISBN:

9798400258152
ISSN:

1018-5941

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