Examining the Credibility of Inflation Forecasts: An Application of Cointegration Techniques
Abstract
In this study we examine the credibility of US inflation forecasts using the ASA-NBER survey data. A standard theoretical model of efficient/unbiased expectations is tested using actual and one year ahead inflation forecasts. Our nonstationarity tests confirm the presence of a single unit root in the levels of the series under consideration, paving the way for an application of cointegration techniques. The efficiency model is divided into weak form (cointegration) and strong from (cointegration and parameter restriction) tests. We use the “null of cointegration” approach to test for the presence of cointegration. Our results indicate that inflation expectations at the one year horizon are weak and strong form efficient.
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