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Do inflation expectations granger cause inflation?
National Institute of Economic Research, Stockholm, Sweden.
Örebro University, Örebro University School of Business.ORCID iD: 0000-0002-4840-7649
2018 (English)In: Economia Politica, ISSN 1120-2890, E-ISSN 1973-820X, Vol. 35, no 2, p. 403-431Article in journal (Refereed) Published
Abstract [en]

In this paper, we investigate whether survey measures of inflation expectations in Sweden Granger cause Swedish CPI inflation. This is done by studying the precision of out-of-sample forecasts from Bayesian VAR models using a sample of quarterly data from 1996 to 2016. It is found that the inclusion of inflation expectations in the models tends to improve forecast precision. However, the improvement is typically small enough that it could be described as economically irrelevant. One exception can possibly be found in the expectations of businesses in the National Institute of Economic Research's Economic Tendency Survey; when included in the models, these improve forecast precision in a meaningful way at short horizons. Taken together, it seems that the inflation expectations studied here do not provide a silver bullet for those who try to improve VAR-based forecasts of Swedish inflation. The largest benefits from using these survey expectations may instead perhaps be found among analysts and policy makers; they can after all provide relevant information concerning, for example, the credibility of the inflation target or challenges that the central bank might face when conducting monetary policy.

Place, publisher, year, edition, pages
Springer, 2018. Vol. 35, no 2, p. 403-431
Keywords [en]
Bayesian VAR, Granger causality, Out-of-sample forecasts
National Category
Economics
Identifiers
URN: urn:nbn:se:oru:diva-68465DOI: 10.1007/s40888-018-0111-9ISI: 000440317500006Scopus ID: 2-s2.0-85050737012OAI: oai:DiVA.org:oru-68465DiVA, id: diva2:1239076
Available from: 2018-08-15 Created: 2018-08-15 Last updated: 2018-08-15Bibliographically approved

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Österholm, Pär

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CiteExportLink to record
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Citation style
  • apa
  • harvard1
  • ieee
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  • vancouver
  • Other style
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  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
  • html
  • text
  • asciidoc
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