Whose Inflation Expectations Best Predict Inflation?
The inflation expectations of professional economists and businesses have tended to provide more accurate predictions of future inflation than the expectations of households and financial market participants, according to a new Economic Commentary by the Federal Reserve Bank of Cleveland.
“We find that the expectations of professional economists and businesses, as demonstrated by the Blue Chip and Atlanta Fed measures, have provided substantially more accurate predictions of CPI inflation one year out compared to those of households,” write researchers Randal Verbrugge and Saeed Zaman.
The authors also find, however, that the forecasts coming from a relatively simple and popular benchmark inflation forecasting model by Stock and Watson have historically been roughly as accurate as the expectations of businesses and professional economists.
Federal Reserve Bank of Cleveland
The Federal Reserve Bank of Cleveland is one of 12 regional Reserve Banks that along with the Board of Governors in Washington DC comprise the Federal Reserve System. Part of the US central bank, the Cleveland Fed participates in the formulation of our nation’s monetary policy, supervises banking organizations, provides payment and other services to financial institutions and to the US Treasury, and performs many activities that support Federal Reserve operations System-wide. In addition, the Bank supports the well-being of communities across the Fourth Federal Reserve District through a wide array of research, outreach, and educational activities.
The Cleveland Fed, with branches in Cincinnati and Pittsburgh, serves an area that comprises Ohio, western Pennsylvania, eastern Kentucky, and the northern panhandle of West Virginia.
Doug Campbell, firstname.lastname@example.org, 513.455.4479