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Estimating inflation expectations using a dynamic factor model
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Helya Farhadi1   , Mehdi Pedram *1 |
| 1- Department of Economics, Faculty of Social Sciences and Economics, Alzahra University, Tehran, Iran |
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Abstract: (676 Views) |
Inflation expectations are a contentious topic in the philosophy and methodology of economics, and their quantification faces numerous challenges. Consequently, achieving reliable estimates of the level of inflation expectations necessitates the application of advanced methods and the use of a vast amount of information. The objective of this research is to calculate an inflation expectations index for the Iranian economy. To this end, by employing a dynamic factor model and based on a large set of macroeconomic time series, the inflation expectations index has been calculated for the period from 1395:1 to 1403:4. In order to enhance forecasting accuracy and estimator efficiency, the factors were extracted using a hybrid approach and by applying iterative algorithms. The results indicate that the output index has successfully predicted the trend of inflation, both in terms of the direction of changes and their magnitude. Diagnostic statistics show that, compared to the forecasts based on surveys of economic elites, the model's output possesses greater accuracy in monitoring future inflation.
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Full-Text [PDF 1083 kb]
(174 Downloads)
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Type of Study: Empirical Study |
Subject:
Prices, Business Fluctuations, and Cycles (E3)
Received: 2025/09/30 | Accepted: 2026/04/26 | Published: 2026/06/23
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