Measuring disagreement in UK consumer and central bank inflation forecasts

Richhild Moessner, Feng Zhu () and Colin Ellis

No 339, BIS Working Papers from Bank for International Settlements

Abstract: We provide a new perspective on disagreement in inflation expectations by examining the full probability distributions of UK consumer inflation forecasts based on an adaptive bootstrap multimodality test. Furthermore, we compare the inflation forecasts of the Bank of England's Monetary Policy Committee (MPC) with those of UK consumers, for which we use data from the 2001-2007 February GfK NOP consumer surveys. Our analysis indicates substantial disagreement among UK consumers, and between the MPC and consumers, concerning one-year- ahead inflation forecasts. Such disagreement persisted throughout the sample, with no signs of convergence, consistent with consumers' inflation expectations not being "well-anchored" in the sense of matching the central bank's expectations. UK consumers had far more diverse views about future inflation than the MPC. It is possible that the MPC enjoyed certain information advantages which allowed it to have a narrower range of inflation forecasts.

Keywords: Adaptive kernel method; adaptive multimodality test; consumer survey; inflation forecasts; nonparametric density estimation (search for similar items in EconPapers)
Pages: 49 pages
Date: 2011-02
New Economics Papers: this item is included in nep-cba, nep-for, nep-mac, nep-mkt and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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