Working Paper

Understanding Survey Based Inflation Expectations

Abstract: Survey based measures of inflation expectations are not informationally efficient yet carry important information about future inflation. This paper explores the economic significance of informational inefficiencies of survey expectations. A model selection algorithm is applied to the inflation expectations of households and professionals using a large panel of macroeconomic data. The expectations of professionals are best described by different indicators than the expectations of households. A forecast experiment finds that it is difficult to exploit informational inefficiencies to improve inflation forecasts, suggesting that the economic cost of the surveys' deviation from rationality is not large.

Keywords: Informational efficiency; Phillips curve; Survey based inflation expectations; Boosting; Inflation forecasting; Machine learning;

JEL Classification: C53; E31; E37;

https://doi.org/10.17016/FEDS.2017.046

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: Finance and Economics Discussion Series

Publication Date: 2017-04

Number: 2017-046

Pages: 36 pages