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Forecasting inflation gap persistence: Do financial sector professionals differ from nonfinancial sector ones?
Author(s) -
Dixon Huw,
Easaw Joshy,
Heravi Saeed
Publication year - 2020
Publication title -
international journal of finance and economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.505
H-Index - 39
eISSN - 1099-1158
pISSN - 1076-9307
DOI - 10.1002/ijfe.1762
Subject(s) - economics , inflation (cosmology) , great moderation , persistence (discontinuity) , recession , moderation , monetary economics , economic stability , output gap , econometrics , index (typography) , macroeconomics , monetary policy , mathematics , physics , geotechnical engineering , theoretical physics , engineering , statistics , world wide web , computer science
The purpose of the present paper is to investigate forecasted inflation gap persistence using professionals' survey‐based data, differentiating between financial and nonfinancial sectors professionals. We derive the forecasted inflation gap persistence, and using a state‐dependent model, we estimate the nonlinear persistence coefficient of the inflation gap. We distinguish between the pre‐Great Moderation, Great Moderation, and Great Recession periods. Our main results indicate that although the estimates of persistence for gross domestic product inflation largely confirm the results obtained using a linear model, for consumer price index inflation, we find that there is strong evidence for state dependence and time variation. By and large, the results are consistent with the price stability policy pursued in the Great Moderation period and perceived disinflationary pressures during the Great Recession period.