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Measurement errors in survey forecasts of expected inflation and the rationality of inflation expectations

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  • Smyth, David J.

Abstract

Studies that use survey data to test the rationality of inflationary expectations usually test for unbiasedness by regressing actual inflation on expected inflation and testing the joint hypothesis that the intercept is zero and the slope coefficient is one. Such studies are fatally flawed because they incorrectly assume that expected inflation is measured without error. A procedure that allows for the influence of observation errors in expected inflation is developed and applied to the University of Michigan Survey Research Center data. Contrary to some recent studies, unbiasedness is rejected.

Suggested Citation

  • Smyth, David J., 1992. "Measurement errors in survey forecasts of expected inflation and the rationality of inflation expectations," Journal of Macroeconomics, Elsevier, vol. 14(3), pages 439-448.
    • Handle: RePEc:eee:jmacro:v:14:y:1992:i:3:p:439-448
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    Cited by:

    1. Miah, Fazlul & Rahman, M. Saifur & Albinali, Khalid, 2016. "Rationality of survey based inflation expectations: A study of 18 emerging economies’ inflation forecasts," Research in International Business and Finance, Elsevier, vol. 36(C), pages 158-166.
    2. Davis, George & Kanago, Bryce, 1998. "High and Uncertain Inflation: Results from a New Data Set," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(2), pages 218-230, May.
    3. Silva Lopes, Artur, 1994. "A "hipótese das expectativas racionais": teoria e realidade (uma visita guiada à literatura até 1992) [The "rational expectations hypothesis": theory and reality (a guided tour ," MPRA Paper 9699, University Library of Munich, Germany, revised 23 Jul 2008.
    4. Jan Marc Berk & Gerbert Hebbink, 2006. "The anchoring of European inflation expectations," DNB Working Papers 116, Netherlands Central Bank, Research Department.
    5. Hugo Oliveros C., 1999. "Expectativas:Una Aproximación A Través De Modelos De Escogencia Discreta," Borradores de Economia 2697, Banco de la Republica.
    6. Miah, Fazlul & Khalifa, Ahmed Ali & Hammoudeh, Shawkat, 2016. "Further evidence on the rationality of interest rate expectations: A comprehensive study of developed and emerging economies," Economic Modelling, Elsevier, vol. 54(C), pages 574-590.
    7. David R. Johnson, 1997. "Expected Inflation in Canada 1988-1995: An Evaluation of Bank of Canada Credibility and the Effect of Inflation Targets," Canadian Public Policy, University of Toronto Press, vol. 23(3), pages 233-258, September.
    8. Ramon Moreno & Agustin Villar, 2010. "Inflation expectations, persistence and monetary policy," BIS Papers chapters, in: Bank for International Settlements (ed.), Monetary policy and the measurement of inflation: prices, wages and expectations, volume 49, pages 77-92, Bank for International Settlements.
    9. Michela Nardo, 2003. "The Quantification of Qualitative Survey Data: A Critical Assessment," Journal of Economic Surveys, Wiley Blackwell, vol. 17(5), pages 645-668, December.
    10. Hugo Oliveros, 1999. "Expectativas: Una Aproximación a Través de Modelos de Escogencia Discreta," Borradores de Economia 137, Banco de la Republica de Colombia.
    11. Jan Marc Berk, 2002. "Consumers' Inflation Expectations And Monetary Policy In Europe," Contemporary Economic Policy, Western Economic Association International, vol. 20(2), pages 122-132, April.

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