Some properties of inflation expectations in the euro area

This paper assesses the euro area inflation expectations by examining five different survey‐based expectations indicators. The Survey of Professional Forecasters outperforms all other expectations indicators in terms of forecasting accuracy. We test the unbiasedness and efficiency of these indicator...

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Bibliographic Details
Published in:Metroeconomica 2020-02, Vol.71 (1), p.176-203
Main Authors: Sorić, Petar, Lolić, Ivana, Matošec, Marina
Format: Article
Language:English
Subjects:
Economic analysis
Economic crisis
Economic models
Euro
Eurozone
Forecasting
Inflation
Inflation expectations
Polls & surveys
Rational expectations
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Summary:This paper assesses the euro area inflation expectations by examining five different survey‐based expectations indicators. The Survey of Professional Forecasters outperforms all other expectations indicators in terms of forecasting accuracy. We test the unbiasedness and efficiency of these indicators by viewing the Rational Expectations Hypothesis (REH) from a time‐varying perspective in a state space framework. Our model shows that the deviations from expectations' unbiasedness and efficiency are the most pronounced in the global financial crisis. Additionally, we offer evidence that the adaptive expectations and regressive expectations models are considerably more in line with actual data than REH.
ISSN:0026-1386
1467-999X
DOI:10.1111/meca.12273