Are Inflation Expectations in Albania Rational? - Empirical Evidence from Surveys Data -

The importance of inflation expectations for monetary policy requires an analysis of their nature: rational or adaptive? This is essential, especially in the inflation targeting regime, recently implemented by the Bank of Albania (BoA). In this paper, we explore inflation expectations obtained through surveys from BoA, over the period 2003 Q2 – 2015 Q1. Qualitative inflation expectations were quantified using different probabilistic approaches and balances, in addition to quantitative ones. Statistical analysis suggests that inflation expectations provide useful information about the direction of future inflationary pressures. Rationality tests confirm the mixed nature of inflation expectations, while at the beginning of 2009 they were assessed as fully-adaptive. Although expectations continue to be dominated by the adaptive component, several of them gained some rational properties over the years.