Inflation Forecasting with Inflation Sentiment Indicators

Arbeitspapier

In this paper we argue that future inflation in an economy depends on the way people perceive current inflation, their inflation sentiment. We construct some simple measures of inflation sentiment which capture whether price acceleration is shared by many components of the CPI basket. In a comparative analysis of the forecasting power of the different inflation indicators for the US and Germany, we demonstrate that our inflation sentiment indicators improve forecast accuracy in comparison to a standard Phillips curve approach. Because the forecast performance is particularly good for longer horizons, we also compare our indicators to traditional measures of core inflation. Here, the sentiment indicators outperform the weighted median and show a similar forecasting power as a trimmed mean. Thus, they offer a convincing alternative to traditional core inflation measures.

Object Details

• ISBN: 978-3-86788-087-9
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Ruhr Economic Papers ; No. 80

Classification and Topics

• Classification: Wirtschaft ; Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data) ; Price Level; Inflation; Deflation ; Prices, Business Fluctuations, and Cycles: Forecasting and Simulation: Models and Applications ; Forecasting Models; Simulation Methods
• Subject: Inflation forecasting ; monetary policy ; Inflation ; Prognoseverfahren ; Inflationserwartung ; Wahrnehmung ; Schätzung ; USA ; Deutschland

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Döhrn, Roland ; Schmidt, Christoph M. ; Zimmermann, Tobias
• Event: Veröffentlichung
• (who): Rheinisch-Westfälisches Institut für Wirtschaftsforschung (RWI)
• (where): Essen
• (when): 2008

Further information

• Handle: http://hdl.handle.net/10419/26846
• Last update: 10.03.2025, 11:44 AM CET