Using Survey Data of Inflation Expectations in the Estimation of Learning and Rational Expectations Models PDF Download
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Author: Arturo Ormeno
Publisher:
ISBN:
Category :
Languages : en
Pages : 38
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Book Description
Does survey data contain useful information for estimating macroeconomic models? We address this question by using survey data of inflation expectations to estimate the New Keynesian model by Smets and Wouters (2007) and compare its performance under rational expectations and adaptive learning. The survey information serves as an additional moment restriction and helps us to determine the learning agents' forecasting model for inflation. Adaptive learning fares similarly to rational expectations in fitting macro data, but clearly outperforms rational expectations in fitting macro and survey data simultaneously. In other words survey data contains additional information that is not present in the macro data alone.
Author: Arturo Ormeno
Publisher:
ISBN:
Category :
Languages : en
Pages : 38
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Book Description
Does survey data contain useful information for estimating macroeconomic models? We address this question by using survey data of inflation expectations to estimate the New Keynesian model by Smets and Wouters (2007) and compare its performance under rational expectations and adaptive learning. The survey information serves as an additional moment restriction and helps us to determine the learning agents' forecasting model for inflation. Adaptive learning fares similarly to rational expectations in fitting macro data, but clearly outperforms rational expectations in fitting macro and survey data simultaneously. In other words survey data contains additional information that is not present in the macro data alone.
Author: Arturo Ormeño
Publisher:
ISBN:
Category : Inflation (Finance)
Languages : en
Pages : 31
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Book Description
Do survey data on inflation expectations contain useful information for estimating macroeconomic models? I address this question by using survey data in the New Keynesian model by Smets and Wouters (2007) to estimate and compare its performance when solved under the assumptions of Rational Expectations and learning. This information serves as an additional moment restriction and helps to determine the forecasting model for inflation that agents use under learning. My results reveal that the predictive power of this model is improved when using both survey data and an admissible learning rule for the formation of inflation expectations.
Author: Peter J. N. Sinclair
Publisher: Routledge
ISBN: 1135179778
Category : Business & Economics
Languages : en
Pages : 402
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Book Description
Inflation is regarded by the many as a menace that damages business and can only make life worse for households. Keeping it low depends critically on ensuring that firms and workers expect it to be low. So expectations of inflation are a key influence on national economic welfare. This collection pulls together a galaxy of world experts (including Roy Batchelor, Richard Curtin and Staffan Linden) on inflation expectations to debate different aspects of the issues involved. The main focus of the volume is on likely inflation developments. A number of factors have led practitioners and academic observers of monetary policy to place increasing emphasis recently on inflation expectations. One is the spread of inflation targeting, invented in New Zealand over 15 years ago, but now encompassing many important economies including Brazil, Canada, Israel and Great Britain. Even more significantly, the European Central Bank, the Bank of Japan and the United States Federal Bank are the leading members of another group of monetary institutions all considering or implementing moves in the same direction. A second is the large reduction in actual inflation that has been observed in most countries over the past decade or so. These considerations underscore the critical – and largely underrecognized - importance of inflation expectations. They emphasize the importance of the issues, and the great need for a volume that offers a clear, systematic treatment of them. This book, under the steely editorship of Peter Sinclair, should prove very important for policy makers and monetary economists alike.
Author: I. Visco
Publisher: Elsevier
ISBN: 1483295834
Category : Business & Economics
Languages : en
Pages : 289
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Book Description
It is claimed in this book that expectations should not necessarily be treated as unobservable variables and that there is much to be learned from survey data. A unique data set is examined, the output of surveys conducted twice a year since 1952, among informed Italian businessmen and economic experts. The predictive accuracy, rationality and determinants of inflation expectations are investigated, following an extensive analysis of measurement issues.The estimate of inflation expectations are evaluated for both wholesale and consumer price changes, comparing them with those held by respondents to other surveys for different countries and with the forecasts generated by alternative predictors of the inflation process. The expectations considered in the study are shown to be remarkably accurate, anticipating all major price changes, even if during the years of high and rising inflation which have followed the first oil crisis they appear to underestimate on a number of occasions the inflation rates actually experienced, as the alternative predictors also do.An accurate testing of the rational expectations hypothesis is conducted, rejecting it over the entire sample period but not for the period of mild, but variable inflation which preceded the first oil crises.It is shown that a mixed adaptive-regressive model, with both error-learning and return-to-normality components adapts very well to the data considered in this study and that inflation expectations are also influenced by an uncertainty component which affects the adaptive coefficient. Furthermore, regression towards normality is slowed down when industrial capacity is utilized above normal, and vice-versa. Many other issues such as the dispersion of individual answers, the problems of aggregation and measurement error are also considered and an extensive bibliography of other works where use is made of direct information on expectations, is included.
Author: George W. Evans
Publisher: Princeton University Press
ISBN: 1400824265
Category : Business & Economics
Languages : en
Pages : 440
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Book Description
A crucial challenge for economists is figuring out how people interpret the world and form expectations that will likely influence their economic activity. Inflation, asset prices, exchange rates, investment, and consumption are just some of the economic variables that are largely explained by expectations. Here George Evans and Seppo Honkapohja bring new explanatory power to a variety of expectation formation models by focusing on the learning factor. Whereas the rational expectations paradigm offers the prevailing method to determining expectations, it assumes very theoretical knowledge on the part of economic actors. Evans and Honkapohja contribute to a growing body of research positing that households and firms learn by making forecasts using observed data, updating their forecast rules over time in response to errors. This book is the first systematic development of the new statistical learning approach. Depending on the particular economic structure, the economy may converge to a standard rational-expectations or a "rational bubble" solution, or exhibit persistent learning dynamics. The learning approach also provides tools to assess the importance of new models with expectational indeterminacy, in which expectations are an independent cause of macroeconomic fluctuations. Moreover, learning dynamics provide a theory for the evolution of expectations and selection between alternative equilibria, with implications for business cycles, asset price volatility, and policy. This book provides an authoritative treatment of this emerging field, developing the analytical techniques in detail and using them to synthesize and extend existing research.
Author: Mark Gertler
Publisher: Mit Press
ISBN: 9780262072533
Category : Business & Economics
Languages : en
Pages : 432
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Book Description
The NBER Macroeconomics Annual presents pioneering work in macroeconomics by leading academic researchers to an audience of public policymakers and the academic community. Each commissioned paper is followed by comments and discussion. This year's edition provides a mix of cutting-edge research and policy analysis on such topics as productivity and information technology, the increase in wealth inequality, behavioral economics, and inflation.
Author: Arto Luoma
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
Abstract: In this paper we discuss a few models developed to explain the general public's inflation expectations formation and provide some relevant estimation results. Furthermore, we suggest a simple Bayesian learning model which could explain the expectations formation process on the individual level. When the model is aggregated to the population level it could explain not only the mean values, but also the variance of the public's inflation expectations. The estimation results of the mean and variance equations seem to be consistent with the results of the questionnaire studies in which the respondents were asked to report their thoughts and opinions about inflation
Author: Mr. Philip Barrett
Publisher: International Monetary Fund
ISBN:
Category : Business & Economics
Languages : en
Pages : 52
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Book Description
The consensus among central bankers is that higher inflation expectations can drive up inflation today, requiring tighter policy. We assess this by devising a novel method for identifying shocks to inflation expectations, estimating a semi-structural VAR where an expectation shock is identified as that which causes measured expectations to diverge from rationality. Using data for the United States, we find that a positive inflation expectations shock is deflationary and contractionary: inflation, output, and interest rates all fall. These results are inconsistent with the standard New Keynesian model, which predicts inflation and interest rate hikes. We discuss possible resolutions to this new puzzle.
Author: Deborah A. Redman
Publisher: Edward Elgar Publishing
ISBN:
Category : Business & Economics
Languages : en
Pages : 216
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Book Description
The major purpose of this work is to make staying up to date with rational expectations (RE) easier for economists in government, academia and industry, as well as for students.
Author: Mr.Rudolfs Bems
Publisher: International Monetary Fund
ISBN: 148439223X
Category : Business & Economics
Languages : en
Pages : 31
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Book Description
Understanding the sources of inflation persistence is crucial for monetary policy. This paper provides an empirical assessment of the influence of inflation expectations' anchoring on the persistence of inflation. We construct a novel index of inflation expectations' anchoring using survey-based inflation forecasts for 45 economies starting in 1989. We then study the response of consumer prices to terms-of-trade shocks for countries with flexible exchange rates. We find that these shocks have a significant and persistent effect on consumer price inflation when expectations are poorly anchored. By contrast, inflation reacts by less and returns quickly to its pre-shock level when expectations are strongly anchored.
