Template-Type: ReDIF-Paper 1.0

Author-Name: Vadim Grishchenko
Author-Email: grishchenkovo@cbr.ru
Author-Workplace-Name: Bank of Russia, Russian Federation

Author-Name: Diana Gasanova
Author-Email:
Author-Workplace-Name: Higher School of Economics, Russian Federation

Author-Name: Egor Fomin
Author-Email: 
Author-Workplace-Name: Higher School of Economics, Russian Federation

Author-Name: Grigory Korenyak
Author-Email: 
Author-Workplace-Name: Moscow State University, Russian Federation



Title: Visible prices and their influence on inflation expectations of Russian households

Abstract: A multitude of recent research shows that the inflation expectations of households are far from rational. 
In making inflation forecasts, people tend to focus on the prices of particular goods and services, which they can 
observe every day – ‘visible prices’. In this paper, we propose a new method for the identification of such items. 
Our novel ‘brute force’ algorithm automatically sorts through the full array of prices of goods and services given 
by Rosstat and constructs consumer baskets. It then selects the best baskets based on their ability to forecast the 
inflation expectations of Russian households from the FOM Survey. In the end, we get a decomposition of various met-rics 
of inflation expectations for visible prices which also demonstrates good forecasting perfor-mance (as compared 
to the AR(1) process as a benchmark). To ensure robustness, we use an alter-native method (optimisation with regularisation) 
and a variety of metrics of inflation expectations. As a result, we get lists of ‘robust visible items’ which include not 
only foodstuffs but mainly durable goods and services. Surprisingly enough, oil and petrol, which are typically labelled 
‘vis-ible goods’ in research, do not fall into this category for Russia.


Length: 34 pages
Creation-Date: 2023-10
Revision-Date:
Publication-Status:
File-URL: https://www.cbr.ru/StaticHtml/File/154629/WP_117_e.pdf
File-Format: Application/pdf
File-Function:
Number: wps117
Classification-JEL: C43, C82, E31, E37
Keywords:  inflation expectations, households, visible prices, visible items, Rosstat, FOM Survey

Handle:RePEc:bkr:wpaper:wps117