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Title:Inflation forecasting with inflation sentiment indicators PDF Logo
Authors:Döhrn, Roland
Schmidt, Christoph M.
Zimmermann, Tobias
Issue Date:2008
Series/Report no.:Ruhr economic papers 80
Abstract:In this paper we argue that future inflation in an economy depends on the way people perceive current inflation, their inflation sentiment. We construct some simple measures of inflation sentiment which capture whether price acceleration is shared by many components of the CPI basket. In a comparative analysis of the forecasting power of the different inflation indicators for the US and Germany, we demonstrate that our inflation sentiment indicators improve forecast accuracy in comparison to a standard Phillips curve approach. Because the forecast performance is particularly good for longer horizons, we also compare our indicators to traditional measures of core inflation. Here, the sentiment indicators outperform the weighted median and show a similar forecasting power as a trimmed mean. Thus, they offer a convincing alternative to traditional core inflation measures.
Subjects:Inflation forecasting
monetary policy
JEL:E30
E31
E37
C53
ISBN:978-3-86788-087-9
Document Type:Working Paper
Appears in Collections:Ruhr Economic Papers, RWI
Publikationen von Forscherinnen und Forschern des RWI

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