Title: Responses of households' expected inflation to oil prices and the exchange rate: Evidence from daily data
Authors: Etsuro Shioji - Hitotsubashi University (Japan) [presenting]
Abstract: Our recent experiences suggest that the household sector's inflation expectations can shift very quickly, in an environment of rapidly developing inflation. The question is if utilizing daily indicators could help predict where those expectations are heading, using Japanese data. For that purpose, we consider several indicators that might affect people's perceptions of the current state of inflation. They include the exchange rate, world oil prices, domestic gasoline prices, daily data on grocery prices at supermarkets and drug stores (called CPINOW), and the index of geopolitical risks. Those variables are incorporated into a Mixed Data Sampling (MIDAS) model that is designed to predict monthly changes in inflation expectations of households captured in the Consumer Confidence Survey. As a result, CPINOW and, to some extent, world oil prices are found to be significant. The magnitudes of their coefficients, however, are rather small.