Estimation of Inflation Expectations Index Based on a Qualitative Survey

Document Type : Scientific paper

Authors

1 Macro economic And Modelling Department Parliament research Center

2 Master's degree, Department of Economic Development and Planning, Faculty of Economics, Allameh Tabatabai University, Tehran, Iran

Abstract

The ability to accurately measure inflation expectations is an integral part of the monetary policy of central banks in the world. In fact, according to the current monetary policy approach that is based on inflation targeting, central banks should be forward-looking and adjust their policies based on people's expectations of the future inflation rate. There are different methods to estimate inflation expectations, the most important of which is to measure inflation expectations by directly asking people about their expectations of prices. These proposed questions may be presented quantitatively or qualitatively. According to the quantitative or qualitative nature of survey questions, different methods are also used to calculate survey-based inflation expectations, which are generally divided into two categories: methods based on quantitative surveys and methods based on qualitative surveys. In this study, using the data obtained from the opinion survey of inflation expectations of the Islamic Council Research Center, which was conducted quarterly from the fall of 1400, the index of inflation expectations based on a qualitative survey in Iran from the fall of 1400 to the fall of 1402 has been calculated and analyzed. For this purpose, the methods of balanced statistics, probability method, and logistic function method were used. The results of comparing the inflation expectations calculated from the mentioned methods and the inflation rate realized in the next three months showed that the probability method with uniform distribution performed better in predicting the future inflation rate. Moreover, the analysis of the trend of the inflation expectations index in the last 9 seasons showed that the intensity of the increase in inflation expectations during the period of currency fluctuations was much higher than during the period when the preferred currency was removed. These results indicate that the central bank should prevent the occurrence of currency shocks and the significant increase in inflationary expectations as much as possible by properly managing the foreign exchange market, allowing the gradual increase of the exchange rate, and reducing its fluctuations around the equilibrium exchange rate.

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Macroeconomics Research Letter
Volume 18, Issue 40
December 2023
Pages 107-127

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History

  • Receive Date: 12 February 2024
  • Revise Date: 19 February 2024
  • Accept Date: 19 February 2024

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