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Emerging patterns in inflation expectations with multiple agents

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  • Macroeconomic theory and central Banks' policy recommendations have analyzed for decades the link between the expected value of future inflation and its subsequent realization. Agents' inflation expectations have thus become a fundamental input of the economic policy: they allow to know if economic agents are synchronized with the policies and allow the Central Banks to anticipate the market trends. In this paper, we found evidence for the case of Uruguay of a discrepancy between the distribution of agents' inflation expectations and the distribution expected by traditional models. A first consequence is an increase in uncertainty in the estimates; problems related to its asymptotic distribution and the assumptions that arise from this aggregate distribution are analyzed. Another consequence is related to the existence of a structure in the data and the notion of equilibrium in the model. It is concluded that a discussion regarding the nature of the economic phenomenon is essential for the correct specification of the model studied.

    Mathematics Subject Classification: Primary: 37N40, 91B69; Secondary: 91B80.


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  • Figure 1.  Responses to Firms' Expectations Survey, forecasting 12 months ahead. Source: BCU, INE

    Figure 2.  Estimation of parameters $ \alpha, \beta, \gamma $ and $ \delta $. In dotted lines 95 % confidence intervals, calculated using bootstrap

    Table 1.  Information obtained from Firms' Expectations Survey. Source: BCU-INE, Uruguay. Firms were asked about their inflation expectations in 18 months ahead until July 2013, and about their inflation expectations in 24 months ahead from July 2013. It is related to the change in the monetary policy horizon of the Central Bank of Uruguay

    Variable Firms expectations
    Data Monthly
    Span 2012.06 to 2017.12
    Surveyed Business financial Managers
    Observations 522 firms
    Inflation Forecast Current year
    12 months
    18 months
    24 months
     | Show Table
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    Table 2.  Proportion of months for which the null hypothesis is rejected. P-values obtained by bootstrap in (a) and by the Shapiro-Wilk test in (b)

    12 months 18 to 24 months
    (a) PL: p-value $< $ 0.05 0 % 1.5 %
    (b) Normal: p-value $< $ 0.05 100 % 100 %
     | Show Table
    DownLoad: CSV

    Table 3.  Sensitivity analysis of the analyzed variables, based on the calculations made by bootstrap

    Variable Expectation 2.5% 25% 50% 75% 97.5 %
    (a) $ \alpha $ 12 months 6.43 7.74 8.46 9.66 17.38
    18-24 months 5.55 6.53 7.49 8.46 10.65
    (b) $ x_{min} $ 12 months 8 10 10 10 14
    18-24 months 8 10 10 11 14.35
    (c) p-value 12 months 0.3067 0.6908 0.9483 0.9999 1.0000
    18-24 months 0.1123 0.6304 0.9497 0.9997 1.0000
     | Show Table
    DownLoad: CSV
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