Survey measures of inflation expectations in Poland: are they relevant from the macroeconomic perspective?

This paper estimates different versions of the stylized New Keynesian model of the Polish economy, in which alternative measures of inflation expectations are used, that is, model-consistent (rational) expectations and survey-based expectations of consumers, enterprises and financial sector analysts. To compare dynamic properties of the models, we analyse propagation of the interest rate impulse, exchange rate impulse and a permanent change of inflation target. Differences in impulse responses pose the question which model should be treated as the most adequate. Analysis of in-sample inflation forecasting errors suggests that the model with rational expectations displays the lowest forecasting accuracy, while the model using expectations of enterprises is the best-performing model. In more general terms, our analysis suggests the best way of exploiting survey data on inflation expectations is not by using them as separate forward-looking information, alternative to macroeconomic models, but by combining both types of information.