Measuring inflation expectations: Traditional and innovative approaches

Abstract

The article is focused on the four methods of measuring and assessing inflation expectations: sociological surveys; stock market indicators; econometric (mathematical) models; methods of big data research. It is noted that the coexistence of these four groups is a consequence of two trends of the last decades: the presence of two lines of economic tools development associated with the improvement of traditional methods and the creation of completely new analytical approaches for processing big data. The transformation of the economy into engineering (technical) science with its inherent problem of instrumental pluralism. Within the framework of sociological surveys, three groups of respondents were considered — population, entrepreneurs and financiers-experts. Market indices of inflation expectations contain a kind of regulatory conflict, the essence of which is that the monetary failures of one Agency (Central Bank) are covered by another Agency (Ministry of Finance) and thus generate unaccounted endogenous shocks. We consider econometric models that include three types-the concept of “back-looking” and “forward-looking” inflation expectations, as well as the concept of the Phillips curve. It is proved that econometric models are characterized by extremely low susceptibility of “black swans” and primitive representation of the mechanism of inflationary expectations formation, which makes this approach the least promising. Among the newest methods of measuring inflation expectations considered big data-technologies that use operational data of the Internet environment and social networks. It is concluded that this class of methods is the most promising and in the future is able in its importance and popularity to come to the first place. The authors substantiate the thesis about the impending reshuffle of the popularity of the four types of inflation expectations estimation methods.