Are Qualitative Inflation Expectations Useful to Predict Inflation?

This paper examines the properties of qualitative inflation expectations collected from economic experts for Germany. It describes their characteristics relating to rationality and Granger causality. An out-of-sample simulation study investigates whether this indicator is suitable for inflation forecasting. Results from other standard forecasting models are considered and compared with models employing survey measures. We find that a model using survey expectations outperforms most of the competing models. Moreover, we find some evidence that the survey indicator already contains information from other model types (e.g. Phillips curve models). However, the forecast quality may be further improved by completely taking into account information from some financial indicators.