Behavioral foundations of inflation expectations
Benchimol et al. combine a nowcast dataset for US CPI inflation with clearly identified forecasters with two new original databases with–mostly web-sourced–detailed information about forecasters and institutions. Their goal is to understand what influences inflation forecasters’ performance. Combining these datasets is premised on the assumption that each expert’s inflation forecasts is significantly influenced by this expert’s past work experience, whether she has worked at a central bank, personal characteristics such as pessimism or boldness, as well as past forecasting performance.
First, we show that experts with central bank experience are less likely to predict deflation. These experts are less pessimistic, but this is mitigated when pessimism turns out to be justified. Second, we highlight the implications and nonlinearities of the role of experience and traits in experts’ forecasting performance and boldness. Third, we confirm that the influence of experts’ traits on forecasting performance and boldness changed following the Global Financial Crisis (GFC). Fourth, we show that underperforming experts are less likely to survive in our expert database, while boldness does not significantly influence this survival rate.
Do Expert Experience and Characteristics Affect Inflation Forecasts?
Authors: Jonathan Benchimol, Makram El-Shagi, Yossi Saadon
From: Bank of Israel, Henan University
Firms’ inflation expectations
In this paper, Candia et al. introduce a new Survey of Firms’ Inflation Expectations (“SoFIE”) that has been running since 2018. SoFIE includes two inflation-related questions to its quarterly survey aimed at measuring: perceptions of the Fed’s inflation target; perceptions of recent inflation; longer-term inflation expectations and finally level of uncertainty in inflation expectations. Since its launch, 1,198 U.S. firms have participated in the survey. Some of their findings:
- U.S. firms are uninformed with respect to both inflation and monetary policy;
- Firms’ inflation expectations exhibit many of the characteristics of households’ inflation expectations and depart dramatically from the inflation expectations of professional forecasters;
- There is a systematic inattention to monetary policy as well as to recent inflation dynamics.
The Inflation Expectations of U.S. Firms: Evidence from a New Survey
Authors: Bernardo Candia, Olivier Coibion, Yuriy Gorodnichenko
From: UC Berkeley, UT Austin
Stockouts and inflation
During the pandemic operational shut-downs, hoarding, sudden change in distribution channels, costs of operating with social distancing, global supply-chain bottlenecks have resulted in many consumer goods being out of stock. Alberto Cavallo is using online data on good prices to estimate the effect of stockouts on inflation. In particular, he looks at the stockouts in 17 large US retailers selling 700K products in 5 major good categories – foods and beverages, furnishings and household, health, electronics, and other goods. He concludes:
- Price effects will remain for a while, potentially contributing to higher inflation expectations;
- Covid moved transactions online, where prices react faster to shocks.
Covid Inflation: Evidence from Real-Time Data
Author: Alberto Cavallo
From: Harvard University
