Inflation expectations: Australian consumer survey data versus the bond market
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In: Journal of Economic Behavior and Organization, Vol. 203, 01.11.2022, p. 416-430.
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TY - JOUR
T1 - Inflation expectations
T2 - Australian consumer survey data versus the bond market
AU - Basse, Tobias
AU - Wegener, Christoph
N1 - Publisher Copyright: © 2022 Elsevier B.V.
PY - 2022/11/1
Y1 - 2022/11/1
N2 - This paper analyzes the relationship between interest rates, inflation expectations and inflation rates in Australia using the approach suggested by Toda and Yamamoto (1995) to test for Granger causality. The empirical evidence reported here suggests that uni-directional Granger causality is running from medium- and long-term government bond yields to short-term inflation expectations as measured by a survey among consumers. Moreover, there is bidirectional Granger causality among short-term interest rates and short-term inflation expectations among consumers. Additionally, interest rates and the sentiment data measuring inflation expectations can help to predict inflation rates. These findings are supportive for the Fisher effect and also seem to indicate that the bond market is quite efficient predicting inflation rates. Furthermore, some problems of more traditional tests of the Fisher hypothesis are discussed. In this context the role of financial deregulation in Australia is examined. Thus, the Lucas critique seems to be of some relevance testing the Fisher effect (see Lucas, 1976).
AB - This paper analyzes the relationship between interest rates, inflation expectations and inflation rates in Australia using the approach suggested by Toda and Yamamoto (1995) to test for Granger causality. The empirical evidence reported here suggests that uni-directional Granger causality is running from medium- and long-term government bond yields to short-term inflation expectations as measured by a survey among consumers. Moreover, there is bidirectional Granger causality among short-term interest rates and short-term inflation expectations among consumers. Additionally, interest rates and the sentiment data measuring inflation expectations can help to predict inflation rates. These findings are supportive for the Fisher effect and also seem to indicate that the bond market is quite efficient predicting inflation rates. Furthermore, some problems of more traditional tests of the Fisher hypothesis are discussed. In this context the role of financial deregulation in Australia is examined. Thus, the Lucas critique seems to be of some relevance testing the Fisher effect (see Lucas, 1976).
KW - Inflations expectations
KW - Granger causality
KW - Fisher effect
KW - Lucas critique
KW - Management studies
UR - http://www.scopus.com/inward/record.url?scp=85138996616&partnerID=8YFLogxK
UR - https://www.mendeley.com/catalogue/f4097b70-bb51-371b-a34c-9a78aa061f0c/
U2 - 10.1016/j.jebo.2022.09.013
DO - 10.1016/j.jebo.2022.09.013
M3 - Journal articles
VL - 203
SP - 416
EP - 430
JO - Journal of Economic Behavior and Organization
JF - Journal of Economic Behavior and Organization
SN - 0167-2681
ER -