What Affects the Predictions of Private Forecasters? The Role of Central Bank Forecasts

This study analyses what affects the expectations of the private forecasters and, particularly, if they are influenced by the central bank's forecasts. The analysis uses data from the Economic Expectation Survey (EES), conducted by the Central Bank of Chile, and from the Monetary Policy Reports (IPoMs) covering the period 2001–2011. Short- and medium-term inflation expectations as well as short-term growth expectations are compared before and after the publication of a given issue of the IPoM, controlling for other factors, which may affect the expectations. These factors include Central Bank credibility, surprises in published data, and changes in the evaluation of the future interest rate, exchange rate and oil price. The results suggest that short-run inflation expectations (current year) of private forecasters are indeed influenced by the forecasts published by the central bank, mainly when these are lower and when they are published at the beginning of the year. They are also affected by surprises in published monthly inflation rates as well as by changes in the expectations for the exchange rate and monetary policy rate. The medium-term inflation expectations depend mainly on changes in short-run expectations, but oil price expectations and the future monetary policy rate also seem to matter. They are also influenced by central bank projections published in the last quarter of the year. The current year's GDP growth expectations in the EES are not affected by the central bank's forecasts as they are affected only by surprises in the monthly indicator of economic activity and the outlook for the monetary policy rate.