The Korean Economic Review
Dispersion of Inflation Expectations: Stylized Facts, Puzzles, and Macroeconomic Implications
Byeongdeuk Jang (Sungkyunkwan University) and Young Se Kim (Sungkyunkwan University)Year 2015Vol. 31No. 1
Building on time-series and cross-sectional properties of survey forecasts, this paperdocuments a fruitful set of stylized facts of inflation expectations in Korea that amacroeconomic theory must aim to explain. Despite the fact that survey measures ofinflation expectations have a similar central tendency, the amount of disagreement amongdifferent types of economic agents appears to be substantial and shows no clear relationshipwith relative price variability. The analysis of micro-level inflation expectations datasuggests that inflation uncertainty measured by dispersion of households expectations reliesnot only on inflation regime but also on relative price variability. Each survey forecast hasthe ability to explain the path of future inflation, but surprisingly with the wrong directionfrom the rationality perspectives. Percentile regression analysis yields robust evidence ofbounded rationality for the households.