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Title Driving Forces of Inflation Expectations
Author Byeongdeuk Jang (Sungkyunkwan University) and Young Se Kim (Sungkyunkwan University)
Volume 33 Number 2
Pages 207-237 
Keywords Inflation, Survey Expectations, Disagreement, Forecast Error
Abstract This paper addresses some important issues regarding the nature of inflation expectations.
By utilizing measures of inflation expectations formed by consumers and professionals, a
series of empirical applications are performed to identify main driving forces of variations in
inflation expectations. Tests of forecast efficiency consistently indicate that survey
expectations are not rational, and thus the expectations of real-world economic actors, not
rational agents in a model, are found to be what matter for price setting. As a logical
consequence of these findings, we explore potential factors agents rely on when forecasting
inflation by looking more closely on price changes in consumption expenditure categories as
well as some key macroeconomic aggregates. Empirical results suggest that agents think
differently how aggregate inflation evolves mainly due to the fact that each type of agents
employs a distinct set of information, which can be interpreted as a dominant source of
disagreement among agents.
File KER-20171231-33-2-01.pdf
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