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Rationality and anchoring of inflation expectations: An assessment from survey‐based and market‐based measures
Author(s) -
Mendonça Helder Ferreira,
Garcia Pedro Mendes,
Vicente José Valentim Machado
Publication year - 2021
Publication title -
journal of forecasting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.543
H-Index - 59
eISSN - 1099-131X
pISSN - 0277-6693
DOI - 10.1002/for.2746
Subject(s) - anchoring , inflation (cosmology) , rationality , economics , monetary policy , survey data collection , rational expectations , inflation targeting , monetary economics , central bank , point (geometry) , econometrics , macroeconomics , psychology , social psychology , statistics , physics , geometry , mathematics , theoretical physics , political science , law
The aim of this paper is twofold. Firstly, we test the rationality of survey‐based and market‐based inflation expectations. Secondly, we investigate whether they indicate a different performance of the central bank in anchoring inflation expectations. Briefly, this paper verifies if inflation expectations' proxies display the same features regarding rationality and anchoring. Using data from the Brazilian market, we present robust evidence that both survey‐based and market‐based inflation expectations have useful content to explain realized inflation. Moreover, we find that these proxies of inflation expectations provide different assessments of the central bank's ability to anchor inflation expectations. The findings point out that central banks must monitor both survey‐based and market‐based inflation expectations to improve their monetary policy conduct.