A 'rational' explanation for 'irrational' forecasts of inflation

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Abstract

This paper analyzes professionals' forecasts of nominal income and the inflation rate. The analysis indicates that both monetary and fiscal policy data was used efficiently to forecast income, but the monetary policy data was not used efficiently to forecast the inflation rate. Further analysis suggests that the apparent inefficient use of the monetary data results from the non-stationary money-inflation relationship predicted by rational expectations models. These models then provide an explanation for the inconsistent conclusions regarding the income forecasts and the inflation rate forecasts.

Original languageEnglish (US)
Pages (from-to)387-392
Number of pages6
JournalJournal of Monetary Economics
Volume13
Issue number3
DOIs
StatePublished - Jan 1 1984

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics
  • Finance

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