Working paper No. 81
By Hasan Bakhshi and Anthony Yates
This paper tests for unbiasedness in inflation expectations drawn from a survey of UK employees by Gallup. It focuses on the econometric difficulties presented by having a small sample, there being overlapping forecast horizons, and by trying to make inference when the data appear to be non-stationary. Applying a method of inference suggested by Inder (1993) the paper concludes that measured expectations systematically overstate inflation. The paper checks the robustness of this result by looking at alternative survey data and by using alternative techniques for modelling the long run.
Are UK inflation expectations rational?