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On the external validity of experimental inflation forecasts: A comparison with five categories of field expectations

Abstract : Establishing the external validity of experimental inflation forecasts is essential if laboratory experiments are to be used as decision-making tools for monetary policy. Our contribution is to document whether different measures of inflation expectations, based on various categories of agents (participants in experiments, households, industry forecasters, professional forecasters, financial market participants and central bankers), share common patterns. We do so by analyzing the forecasting performance of these different categories of data, their deviations from full information rational expectations, and the variables that enter the determination of these expectations. Overall, the different categories of forecasts exhibit common features: forecast errors are comparably large and autocorrelated, and forecast errors and forecast revisions are predictable from past information, suggesting the presence of some form of bounded rationality or information imperfections. Finally, lagged inflation positively affects the determination of inflation expectations. While experimental forecasts are relatively comparable to survey and financial market data, more heterogeneity is observed compared to central bank forecasts.
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Submitted on : Wednesday, July 8, 2020 - 6:14:37 PM
Last modification on : Wednesday, September 29, 2021 - 4:54:22 PM

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Camille Cornand, Paul Hubert. On the external validity of experimental inflation forecasts: A comparison with five categories of field expectations. Journal of Economic Dynamics and Control, Elsevier, 2020, 110, pp.103746. ⟨10.1016/j.jedc.2019.103746⟩. ⟨hal-02894262⟩

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