An Inflation Expectations Horserace

Abstract

For decades, the academic literature has focused on three survey measures of expected inflation: the Livingston Survey, the Survey of Professional Forecasters, and the Michigan Survey. While these measures have been useful in developing models of forecasting inflation, the data are low frequency measures which appear anachronistic in the modern era of high frequency and real-time data. I present a collection of 37 different measures of inflation expectations, including many previously unexploited monthly and real-time measures of inflation expectations. These higher frequency measures tend to outperform the standard three low frequency survey measures in tests of accuracy, predictive power, and rationality, indicating that there are benefits to using higher frequency measures of inflation expectations. Out of sample forecasts confirm the findings.

Keywords: Inflation, expectations, surveys, households, economists, rationality, efficiency, unbiasedness, forecast accuracy, out-of-sample forecasts, Granger Causality, high-frequency data, price level, money and prices, CPI, PPI, PCE

JEL Classification: A10, C10, C12, C13, C22, C40, C42, C50, C51, C52, C53, C82, D84, E00, E30, E31, E37, E40, E44, E58