How do firms and analysts view the trade-off between inflation and real economic performance?
Inflation expectations have become increasingly important for monetary policy making, but successful use of this data is dependant on how it is measured, and the hypothesised economics theory about how inflation expectations relate to other economics variables e.g. the Phillips Curve. While many measures of inflation expectations exist, expectations formed by businesses are particularly scarce. This area of research has been neglected for over a decade.
Using an extensive dataset, this research compares financial analysts’ expectations to expectations formed using a broad set of macroeconomic variables such as inflation, GDP growth, Rand/USD exchange rate, prime rate, wages, and microeconomic variables such as firm size, position, and SIC (Standard Industrial Classification).
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