Directional analysis of consumers’ forecasts of inflation in a small open economy: evidence from South Korea

Young Bin Ahn, Yoichi Tsuchiya

Research output: Contribution to journalArticlepeer-review

4 Citations (Scopus)

Abstract

We evaluate the directional accuracy of consumers’ forecasts of inflation in predicting the movement of the actual CPI in a small open economy. In order to do so, we use a method developed by Pesaran and Timmermann (2009), based on South Korean data. By illustrating an application of the new market-timing test, we show that consumers’ expectations of inflation are not a useful predictor of the CPI in South Korea. Our findings suggest that the directional accuracy of consumers’ 1-year-ahead forecasts of inflation is not affected by the inflation targeting of the Bank of Korea. Our findings also suggest that consumers’ 1-year-ahead forecasts of inflation are scattered away from the Bank of Korea’s inflation target.

Original languageEnglish
Pages (from-to)854-864
Number of pages11
JournalApplied Economics
Volume48
Issue number10
DOIs
Publication statusPublished - 2016 Feb 25
Externally publishedYes

Keywords

  • CPI
  • Directional analysis
  • consumers’ inflation forecasts
  • small open economy
  • survey data

ASJC Scopus subject areas

  • Economics and Econometrics

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