Do Household Expectations Help Predict Inflation?

Do Household Expectations Help Predict Inflation?
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Volume/Issue: Volume 2023 Issue 224
Publication date: October 2023
ISBN: 9798400258152
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Topics covered in this book

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Inflation , Economics- Macroeconomics , Economics / General , Inflation , inflation expectations , survey expectations , household expectations , inflation expectation , decreasing inflation dummy , household expectation , moments model , one-year expectations in the US , Global

Summary

We examine whether changes in the distribution of household inflation expectations contain information on future inflation. We first discuss recent shifts in micro data from the US, UK, Germany, and Canada. We then zoom in on the US to explore econometrically whether distributional characteristics help predict future inflation. We find that the shape of the distribution of household expectations does indeed help predict one-year-ahead CPI inflation. Variance and skewness of household expectations’ distributions add predictive power beyond and above the median, especially in periods of high inflation. Remarkably, qualitatively, these results hold when including market-based measures and moments of the distribution of professional forecasts.