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435 - The forecasting horizon of inflationary expectations and perceptions in the EU – Is it really 12 months?

Author(s): Lars Jonung, Lund University and Swedish Fiscal Policy Council, and Staffan Lindén, European Commission

The forecasting horizon of inflationary expectations and perceptions in the EU – Is it really 12 months?pdf(569 kB) Choose translations of the previous link 

Summary for non-specialistspdf(90 kB) Choose translations of the previous link 

We use survey based inflationary expectations to explore the forecasting horizons implicitly used by the respondents to questions about the expected rate of inflation during the coming 12 months. We examine the forecast errors, the mean error and the RMSEs, to study if the forecast horizon is truly 12 months as implied by the questionnaires. Our working hypothesis is that the forecast error has a U-shaped pattern, reaching its lowest value on the 12-month horizon. Our exploratory study reveals large differences across countries. For most countries, we get the expected U-shaped outcome for the forecast errors. The horizon implicitly used by respondents when answering the questions is not related to the explicit time horizon of the questionnaire. On average respondents use the same horizon when answering both questions.

(European Economy. Economic Papers 435. December 2010. Brussels. PDF. 31pp. Tab. Graph. Bibliogr. Free.)

KC-AI-10-435-EN-N (online)
ISBN 978-92-79-14921-4 (online)
ISSN 1725-3195 (online)
doi: 10.2765/47085 (online)

JEL classification: C33, E31, E32, E37, E58

Economic Papers are written by the staff of the Directorate-General for Economic and Financial Affairs, or by experts working in association with them. The Papers are intended to increase awareness of the technical work being done by staff and to seek comments and suggestions for further analysis. The views expressed are the author’s alone and do not necessarily correspond to those of the European Commission.

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