Discussion Paper Series 2022-E-14

Individual Trend Inflation

Toshitaka Sekine, Frank Packer, Shunichi Yoneyama

This paper extends the recent approaches to estimate trend inflation from the survey responses of individual forecasters. It relies on a noisy information model to estimate the trend inflation of individual forecasters. Applying the model to the recent Japanese data, it reveals that the added noise term plays a crucial role and there exists considerable heterogeneity among individual trend inflation forecasts that drives the dynamics of the mean trend inflation forecasts. Divergences in forecasts as well as moves in estimates of trend inflation are largely driven by a identifiable group of forecasters who see less noise in the inflationary process, expect the impact of transitory inflationary shocks to wane more quickly, and are more flexible in adjusting their forecasts of trend inflation in response to new information.

Keywords: Inflation forecast; Disagreement; Unobserved components model; Noisy information; Inflation target; Quantitative and qualitative monetary easing; Bank of Japan

Views expressed in the paper are those of the authors and do not necessarily reflect those of the Bank of Japan or Institute for Monetary and Economic Studies.

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