On the formation of inflationary expectations: Some empirical evidence from Finland, 1979–1980

The Econometrics of Inflationary Expectations.

In this paper, we study the effects of EU economic integration on the financial characteristics of French, German, and U.K. manufacturing firms by using the MANOVA (Multivariate Analysis of Variance) technique. Our cross-sectional test results for the December 31, 1990-December 31, 1994 and December 31, 2000-December 31, 2004 periods indicate that the differences between the financial characteristics of manufacturing firms in different EU member countries are decreasing. The asset and equity returns of manufacturing firms in different member countries are becoming similar due to economic integration and increased competition over time.

The Effects of Economic Integration on the Financial Characteristics of EU Manufacturing Firms: 1990-2004

Inflation forecasts are an important part of modern day activist stabilization policy, and hence their accuracy and credibility is of vital importance. We examine the accuracy of these forecasts by testing for rationality in the expectation formation process using the Survey of Professional Forecasters data surveys of annual inflation forecasts. The non-stationarity of the actual and forecasted series allows for the application of cointegration techniques. We sequentially apply the Johansen Maximum Likelihood and the (recently available) Bieren Non-Parametric Cointegration tests. These techniques are complementary, and thus help strengthen our results. We find evidence indicating the presence of a cointegrating vector between the actual and forecasted series, which is evidence of the presence of rationality in the expectations formation process. I. Introduction Inflation forecasts are an important part of macroeconomic models, especially in the context of proactive monetary and fiscal policy. In the corporate world, inflation forecasts are used with the prevailing rate of interest to determine the expected real rate of interest, and these forecasts have a significant impact on firms’ future investment on factories, equipment, and inventories. Inflation expectations are also used in household expenditure calculations of consumers, especially for the purchase of consumer durables. Government uses inflation forecasts in calculating the long term solvency of the Social Security system. Research efforts have been aimed at studying the efficiency, unbiasedness and rationality of forecasts such as the Livingston data, the Decision Makers Poll, Michigan Household Survey, Money Market Survey, etc. These forecasts are of questionable relevance, and their usefulness in macro models is doubtful in the absence of these properties. Thus, a necessary condition for using inflation forecasts in the formulation of policy is the credibility of these forecasts. Results are far from conclusive. Some surveys are conducted qualitatively, and then subsequently converted to quantitative data, making their use questionable. Other studies, such as Evans and Gulamani (1984), Batchelor (1986) and Kanoh and Li (1990), have examined the credibility of qualitative versus quantitative data and the errors in the conversion from one form to the other. A second line of research examines short horizon and long horizon forecasts and the statistical characteristics of the forecasts as the time frame changes. Studies along these lines are Stenius (1986), Thompson and Ottosen (1993) and Gagnon (1996). But research in this area has revolved around measuring the accuracy and credibility of these forecasts through an empirical examination of economic hypotheses such as unbiasedness, efficiency and rationality. Such studies in this field are

Inflation Forecasts: An Empirical Re-examination

The analysis of inflation expectations is extended by distinguishing between short-term and long-term expectations using data from financial markets. The term structure of inflation expectation is explicitly considered. The adaptive expectations hypothesis obtains strong support from the data, while the Frenkel hypothesis can clearly be rejected. This result is clearly at variance with those obtained in Lahiri (1981).

Separating Short-Term and Long-Term Inflation Expectations Using Observations from Financial Markets

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Separating Short-Term and Long-Term Inflation Expectations Using Observations from Financial Markets