A Study On Comparison And Correlation Between The Inflation Expectations Of Residents And Experts

Inflation expectations mean the people’s psychological expectations of theinflation rate for the next period of time. It plays a very important role in the study ofthe problem of inflation, in the analysis of monetary policy and in the process of thebusiness cycle. However, in existing studies, the majority of the assumptions arehomogeneity of inflation expectations, one obvious question is ignored: Not everyonehas the same expectation (Mankiw,2003). In recent years, the homogeneityassumption of the inflation expectations began to be questioned and criticized, andthen the domestic and foreign scholars began to study the heterogeneity of Inflationexpectations.This paper studied inflation expectations heterogeneity as a starting point,focused on the relationship between the Chinese residents’ inflation expectations andexperts’ inflation expectations, and carried out an empirical test on the formationmechanism of our residents’ inflation expectations by using the epidemiologicalmodels. The research contents include follows: First, we use the standardCarlson-Parkin method to convert and process the data in Household Savings SurveySystem which published by the People’s Bank of China, We regard it as the data ofresidents inflation expectations in China; Second, we use methods such as deviationanalysis, Granger causality test, the test of rational expectations and adaptiveexpectations to compare the deviation, the formation mechanism of residents andexperts inflation expectations and their relationship with the actual inflation; Third,we carried out theoretical analysis and empirical testing to the relationship betweeninflation expectations of residents and experts. On the basis of the comparisonbetween the inflation expectations of residents and experts, we further studied theirrelationship combined with Carroll’s (2003) epidemiological model. According toChina’s actual situation, we adjusted the epidemiological models, thus constituting abaseline model to study the formation mechanism of residents’ inflation expectations.The results of this study show that: First, The basic trend of residents andexperts’ inflation expectations are the same with the actual inflation, but the deviationof experts’ inflation expectations and actual inflation is relatively small. Generally, theinflation expectations of residents and experts present interaction causality with the actual inflation. The difference is, the experts inflation expectations have a longerduration of action to the actual inflation, while the residents’ inflation expectationsonly in a short term. Second, between the inflation expectations of residents andexperts, it indeed exists a relatively stable heterogeneity. In the test of the nature ofinflation expectations, through the rational and adaptive expectation test, we foundthat the experts have the advantages in the obtain cost and processing capabilities ofinformation, their inflation expectations are closer to rational expectations; on thecontrary, residents inflation expectations are more in line with the characteristics ofthe adaptive expectations. Third, Through the Granger causality test, we believe thatthe direction of the causal relationship of the two types of inflation expectations isfrom the experts to the residents. Further empirical tests show that the adjustedepidemiological model adequately captures the dynamics of residents’ inflationexpectations. Different from Europe and the United States, The formation of ourcountry’s residents’ inflation expectations are jointly determined by the experts’inflation expectations in the same period, the residents’ inflation expectations andactual inflation in the past.The innovation of this paper is as follows: First, This paper broke through thetraditional research-based ideas of homogeneous expectations, Basing on theheterogeneity of inflation expectations theory and sticky information theory toresearch the relationship between the residents’ inflation expectations and experts’inflation expectations, in order to enrich the existing theoretical analysis framework.Second, this paper based on demographic characteristics and economic characteristicsto divide China’s economic body into two groups of residents and experts. Currently,there is rarely specialized research to the relationship of these two types of inflationexpectations in our country, and this paper is a useful attempt. Third, Because of theestimating method of expectations and the formation mechanism of expectations isdifference with Europe and the United States, Carroll’s epidemiological model can’tbe applied to our country’s inflation expectations data, it must be optimized andadjusted, so as to improve the model’s applicability.The research significance of this paper is to:(1) To a large extent, theheterogeneity of inflation expectations is caused by the formation mechanism ofinflation expectations. Through the examination and comparison of the expectationsformation mechanism of different groups, we can better explain the heterogeneity ofinflation expectations in China and its causes.(2) According to the empirical results, we have come to some conclusions about the relationship between inflationexpectations of residents and experts, it is of great significance to our central bank tomanage inflation expectations and make more scientific monetary policy.