Gender differences in macroeconomic expectations: evidence from Turkey

The aim of this study is to examine how men and women’s expectations differ about macroeconomic outlook. We examine whether there exist similarities or differences in men and women’s macroeconomic expectations. For this paper, 365 of Turkey’s leading business economists, strategists, portfolio managers and industry managers participated in a survey titled “Economic Expectations in Turkey for 2010.” The survey investigates gender differences in regards to four macroeconomic expectations; namely, inflation, unemployment, growth and exports. The survey participants are first classified according to their gender, and then their economic perceptions are analyzed. Initially, Kolmogorov–Smirnov statistics are implemented to test normality of data. Then, the Chi-square test of independence is used to compare macroeconomic expectations of men and women. The empirical findings show that macroeconomic expectations of males and females are not statistically different for inflation, unemployment, and exports. On the other hand, macroeconomic expectations of males and females are statistically different only for economic growth at a 10% level. The results indicate that gender is not one of the main determinants for macroeconomic expectations.     

The (de-)anchoring of inflation expectations: New evidence from the euro area

Well-anchored inflation expectations are a key factor for achieving economic stability. This paper provides new empirical results on the anchoring of long-term inflation expectations in the euro area. In line with earlier evidence, we find that euro area inflation expectations have been anchored until fall 2011. Since then, however, they respond significantly to macroeconomic news. Our results obtained from multiple endogenous break point tests suggest that euro area inflation expectations have remained de-anchored ever since.     

The Influence and Policy Signalling Role of FOMC Forecasts

Federal Open Market Committee (FOMC) policymakers have published macroeconomic forecasts since 1979 and we examine the effects of FOMC inflation forecasts using a structural VAR model. First, we assess whether they influence private inflation expectations. Second, we investigate the underlying mechanism at work and whether they convey policy signals. We provide original evidence that FOMC inflation forecasts influence private ones. We also find that the influencing effect of FOMC forecasts does not come through current Fed rate changes, that FOMC forecasts affect private expectations in a different way than current policy decisions, and that FOMC forecasts are informative about future Fed rate movements.     

Impact of macroeconomic surprises on the Brazilian yield curve and expected inflation

This study investigates how unexpected announcements in Brazilian and U.S. macroeconomic indicators affect the term structure of nominal interest rates, as well as implicit inflation expectations and real interest rates. Using daily data from March 2005 to December 2012, we employ an extended Vector Error Correction Model to take into account nonstationarity and the long-term equilibrium among different maturities of those curves. We found empirical evidence that macroeconomic surprises, domestic (Brazilian) and external (U.S. American), which lead the market to believe that there might be a higher risk of inflation or an overheated economy, raise nominal interest rates, implicit expected inflation and real interest rates. Surprisingly, in relation to the efficient-market hypothesis, we found that some macroeconomic surprises have a lagged effect on the yield curves. We also tested the impact of the global financial crisis of 2007–09 and found that the crisis affected significantly the direction and magnitude of the responses to macroeconomic news.     

New tips from TIPS: Identifying inflation expectations and the risk premia of break-even inflation

This paper decomposes the break-even inflation rates derived from inflation-indexed bonds into inflation risk premia, liquidity risk premia, and inflation expectations. I estimate a common factor model with autoregressive conditionally heteroscedastic (ARCH) errors that extracts co-movements from twenty-two monthly and quarterly indicators to identify these three components. The results indicate that the sharp declines in the 10-year and 5-year break-even inflation rates in 2009 reflect a substantial increase in liquidity risk rather than a decrease in inflation expectations. Break-even inflation rates underestimate inflation expectations over nearly the entire sample due to the liquidity risk premia carried by the inflation indexed bond yields. Also, the model-implied inflation expectations show better forecast performance for the average annual inflation rates than raw break-even inflation rates, the Survey of Professional Forecasters, and the Surveys of Consumers inflation forecasts.     

UK Macroeconomic Volatility and the Term Structure of Interest Rates*

This study uses a macro‐finance model to examine the ability of the gilt market to predict fluctuations in macroeconomic volatility. The econometric model is a development of the standard ‘square root’ volatility model, but unlike the conventional term structure specification it allows for separate volatility and inflation trends. It finds that although volatility and inflation trends move independently in the short run, they are cointegrated. Bond yields provide useful information about macroeconomic volatility, but a better indicator can be developed by combining this with macroeconomic information.     

From inflation to exchange rate targeting: Estimating the stabilization effects for a small open economy

This paper attempts to estimate possible losses in macroeconomic stabilization due to a move from inflation to exchange rate targeting on the example of the Czech Republic. The authors use an estimated New Keynesian policy model, typical inflation and exchange rate targeting rules, and representative central bank loss functions to carry out these estimations. The authors find that for the Czech Republic, moving from the historically applied inflation targeting to optimized exchange rate targeting should not involve any significant losses in macroeconomic stabilization. However, the Czech National Bank could improve its stabilization outcomes while remaining an inflation targeter. This requires the Czech National Bank to respond more strongly to increasing expected future inflation and to be less concerned about an opening output gap when adjusting its policy rate. Moving then from such optimized inflation targeting to optimized exchange rate targeting can result in significant losses in economic stabilization in the magnitude of 0.4–2% points of GDP growth.     

Inflation Uncertainty, Output Growth Uncertainty and Macroeconomic Performance

We use a bivariate generalized autoregressive conditionally heteroskedastic (GARCH) model of inflation and output growth to examine the causality relationship among nominal uncertainty, real uncertainty and macroeconomic performance measured by the inflation and output growth rates. The application of the constant conditional correlation GARCH(1,1) model leads to a number of interesting conclusions. First, inflation does cause negative welfare effects, both directly and indirectly, i.e. via the inflation uncertainty channel. Secondly, in some countries, more inflation uncertainty provides an incentive to Central Banks to surprise the public by raising inflation unexpectedly. Thirdly, in contrast to the assumptions of some macroeconomic models, business cycle variability and the rate of economic growth are related. More variability in the business cycle leads to more output growth.     

INFORMATION IN THE YIELD CURVE: A MACRO‐FINANCE APPROACH

We use a macro‐finance model, incorporating macroeconomic and financial factors, to study the term premium in the US bond market. Estimating the model using Bayesian techniques, we find that a single factor explains most of the variation in bond risk premiums. Furthermore, the model‐implied risk premiums account for up to 40% of the variability of one‐ and two‐year excess returns. Using the model to decompose yield spreads into an expectations and a term premium component, we find that, although this decomposition does not seem important to forecast economic activity, it is crucial to forecast inflation for most forecasting horizons. Copyright © 2012 John Wiley & Sons, Ltd.     

Decomposing the declining volatility of long-term inflation expectations

The level and volatility of survey-based measures of long-term inflation expectations have come down dramatically over the past several decades. To capture these changes in inflation dynamics, we embed both short- and long-term expectations into a medium-scale VAR model with stochastic volatility. The model estimates attribute most of the marked decline in the volatility of expectations to smaller shocks to long-run inflation expectations. According to our estimates, the volatility of shocks plummeted in the early to mid-1980s, moved to a somewhat higher level that prevailed for much of the 1990s, and then declined to and remained at very low levels.     

Inflation expectations in India: Learning from household tendency surveys

We use a large household survey that is being conducted by the Reserve Bank of India since 2005 to estimate the dynamics of aggregate inflation expectations over a volatile inflation regime. A simple average of the quantitative responses produces biased estimates of the official inflation data. We therefore estimate expectations by quantifying the reported directional responses. We perform quantification by using the hierarchical ordered probit model, in addition to the balance statistic. We find that the quantified expectations from qualitative forecasts track the actual inflation rate better than the averages of the quantitative forecasts, highlighting the filtering role of qualitative tendency surveys. We also report estimates of the disagreement among households. The proposed approach is particularly suitable in emerging economies, where inflation tends to be high and volatile.     

Inflation targeting and expectation anchoring: Evidence from developed and emerging market economies

Inflation expectations can be inferred from treasury yields data. Previous studies utilizing such data have found evidence for the role of inflation targeting in anchoring inflation expectations in a number of developed market economies. The goal of this paper is to extend the evidence for emerging market economies. We estimate inflation expectations from nominal treasury yields data and infer the anchoring of inflation expectations from the sensitivity of inflation expectations to current inflation rates. Our analysis shows that the effect of inflation targeting is statistically significant in emerging market economies as well as in developed market economies and that the magnitude is marginally greater in the former. Our results are robust to alternative specifications.     

Asset price targeting in an open economy with cognitive limitations: The best for macroeconomic and financial stability?

The choices of policy targets and the formation of agent expectations have been critical issues addressed by monetary policy management since the financial crisis of 2008. This paper evaluates macroeconomic stability in a new Keynesian open economy in which agents experience both cognitive limitations and asset market volatility. The (im)perfect credibility of various monetary policies (e.g., a Taylor-type rule with- or without asset price targeting, strict domestic inflation targeting, strict CPI inflation targeting, and exchange rate peg) may lead agents to react according to their expectation rules, and thus create various degrees of booms and busts in output and inflation. Simulations confirm that a Taylor-type CPI inflation targeting including an asset price target is the best choice. In contrast, the business cycles induced by Keynesian “animal spirits” are enhanced by strict inflation targeting. Furthermore, a credible exchange rate pegging system with an international reserve pooling arrangement can improve social welfare and stability in an open economy, even though its absolute value of the loss function is slightly lower than a Taylor-type CPI inflation targeting including an asset price target.     

Some empirical evidence on the real effects of nominal volatility

It has been argued that volatility in nominal macroeconomic aggregates has had a negative effect on real output, in particular that such volatility contributed to slow output growth in the early 1980s. This paper reexamines the effects of volatility in nominal macroeconomic aggregates in the context of a modern simultaneous equation framework where the volatility of, nominal macroeconomic variables is modeled as the conditional variance of two variables of interest: the federal funds rate and inflation. The empirical framework is the recently developed multivariate GARCH-in-mean vector autoregressive model. We confirm evidence that inflation volatility and tight monetary policy have directly affected output growth, but find that volatility in the federal funds rate has not.     

News on inflation and the epidemiology of inflation expectations in China

Inflation expectations are important elements in monetary policy analysis. This paper examines how inflation expectations of Chinese consumers and professional forecasters are affected by media sentiments based on the epidemiological foundations of the sticky information model. Rather than assuming professional forecasts are identical to newspaper forecasts, we assume news media are a common source for the transmission of typical people's inflation expectations. We collect media data from 30 leading newspapers and magazines in China and code news reports into three types of inflation: rising, falling, and unchanged. More importantly, we categorize the media pool into comprehensive, economic, and politically oriented media sources. We find a fundamental connection between news media and inflation expectations. However, there are significantly different impacts of news reports in different media sources on expectations. The difference is mainly concentrated in politically oriented media sources, and may be a reflection of China's unique media administration system.     

Yield curve responses to market sentiments and monetary policy

Central banks recently started to target longer term interest rates. The empirical failure of the rational expectations theory of the yield curve, however, limits its applicability to monetary policy analysis. The success of agent-based behavioral asset pricing models and behavioral macroeconomic models in replicating statistical regularities of empirical data series motivates to apply them to yield curve modeling. This paper analyses how the interaction of monetary policy and market sentiments shape the yield curve in a behavioral model with heterogeneous and bounded-rational agents. One result is that the behavioral model replicates empirical facts of term structure data. Moreover, it overcomes one major deficiency of rational expectations models of the yield curve in explaining the empirically observed uncertain responses of longer term yields to changes in the central bank rate. These are explained by the behavioral model’s ability to generate different responses of market sentiments to shocks at different times which lead to a variety of interest rate responses. Further results of this paper can be used as policy advice on how central banks can target the level, slope and curvature of the yield curve by targeting market sentiments about inflation and the business cycle.     

Fitting observed inflation expectations

The paper provides evidence on the extent to which inflation expectations generated by a standard Christiano et al. (2005)/Smets and Wouters (2003)-type DSGE model are in line with what observed in the data. We consider three variants of this model that differ in terms of the behavior of, and the public's information on, the central banks' inflation target, allegedly a key determinant of inflation expectations. We find that (i) time-variation in the inflation target is needed to capture the evolution of expectations during the post-Volcker period; (ii) the variant where agents have Imperfect Information is strongly rejected by the data; (iii) inflation expectations appear to contain information that is not present in the other series used in estimation, and (iv) none of the models fully capture the dynamics of this variable.     

Rules versus discretion - A disinflation case

This paper compares a strict inflation target regime to a conservative central bank regime to determine the monetary regime appropriate for a disinflation process. The analysis shows that in a two-period model, in which policymakers face given first-period inflationary expectations, a strict inflation target could be preferred to the appointment of a conservative central banker who has discretion. The result differs from that of Rogoff (1985), who assumed rational expectations and concluded that a conservative central banker is always preferable. The disadvantage of the conservative central banker derives from his tendency to accelerate disinflation relative to rate that maximizes social welfare.JEL Classification: E52, E58The authors are grateful to Alex Cukierman, Nissan Liviatan, Allan Drazen, Amit Friedman and Yoav Friedmann for their useful suggestions. We also thank the anonymous referees for helpful comments. Earlier versions of this paper were presented at the Tel Aviv University macroeconomic workshop, at the Research Department seminar, Bank of Israel, and at the Bank of Israels conference on Macroeconomic Policy, October 2002.     

基于G(1,1)模型的2010年中国价格指数预测分析

近期,周小川表示,中国的通货膨胀已经显现。管理好通货膨胀成为今年宏观调控新重点。为研究2010年通货膨胀变化趋势,为宏观经济决策提供依据,文章以1994～2009年历年各月原材料、燃料、动力购进价格指数、工业品出厂价格指数、商品零售价格指数、居民消费价格指数为基础,运用GM(1,1)模型,对中国2010年上述四种价格指数进行了预测。     

Learning, monetary policy rules, and macroeconomic stability

Several papers have documented a regime switch in US monetary policy from ‘passive’ and destabilizing in the pre-1979 period to ‘active’ and stabilizing afterwards. These studies typically work with DSGE models with rational expectations.This paper relaxes the assumption of rational expectations and allows for learning instead. Economic agents form expectations from simple models and update the parameters through constant-gain learning. In this setting, the paper aims to test whether monetary policy may have been a source of macroeconomic instability in the 1970s by inducing unstable learning dynamics.The model is estimated by Bayesian methods. The constant-gain coefficient is jointly estimated with the structural and policy parameters in the system.The results show that monetary policy was respecting the Taylor principle also in the pre-1979 period and, therefore, did not trigger macroeconomic instability.