Accuracy of Market-Based and Survey-Based Inflation Expectations in Forecasting Russian Inflation

Evgenia L. Prokopjeva 1, Matvey S. Khoroshilov 2

1 Novosibirsk State University of Economics and Management, Novosibirsk, Russia
2 Novosibirsk State University, Novosibirsk, Russia

Abstract

Central banks use inflation expectations indicators to forecast inflation and make decisions on monetary policy. Information on inflation expectations is available from surveys, news indices, and financial market data. The relevance of this study is due to the lack of consensus in the foreign and domestic literature on which metric delivers the most accurate forecasts for inflation expectations. This study aims to compare the accuracy of forecasts obtained using the expectations of financial market participants with the expectations of firms, consumers, and statistics on search queries related to inflation. We assume that including market inflation expectations, measured through breakeven inflation for inflation-linked bonds, in the inflation forecasting model increases its accuracy compared to models using alternative metrics. The paper implements a quarterly forecast based on the New Keynesian Phillips curve using the above-mentioned inflation expectations variables on Russian data for 11.2015-10.2024. A recursive forecasting scheme (expanding window) is applied. The results of the Diebold-Mariano test demonstrate that all proposed specifications of the Phillips curve, except for the model with consumer expectations, outperformed the random walk model in the absence of external shocks (starting from February 2022). The model based on breakeven inflation is not inferior to alternative metrics and outperforms the model with consumer expectations. The highest accuracy is achieved by models using producers' expectations and search query statistics. The theoretical results of the study develop methods for assessing inflation expectations. An original difference method is proposed, allowing the expected rate of price growth to be expressed explicitly, taking into account the characteristics of the Russian Ministry of Finance's inflation-linked OFZ bonds. In practical terms, the study allows us to answer a question that is relevant for the regulator: Whose expectations should be trusted more? Future research might focus on the synthesis of market expectations by constructing structural models based on financial instruments that are more widespread than OFZ-IN and linked to the Bank of Russia's key rate, which responds to inflation.

Keywords

inflation forecasting; Phillips curve; inflation expectations; breakeven inflation; financial market expectations.

JEL classification

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About Authors

Evgenia Leonidovna Prokopjeva

Doctor of Economics, Professor, Department of Financial Markets and Financial Institutions, Novosibirsk State University of Economics and Management, Novosibirsk, Russia (630099, Novosibirsk, Kamenskaya street, 56); ORCID: https://orcid.org/0000-0002-6818-5780 e-mail: evgenia-prokopjeva@yandex.ru

Matvey Sergeevich Khoroshilov

Master's Student, Novosibirsk State University, Novosibirsk, Russia (630090, Novosibirsk, Pirogova street, 2); ORCID https://orcid.org/0000-0003-2498-4051 e-mail: matveykhoroshilov222@gmail.com

For citation

Prokopjeva, E.L., Khoroshilov, M.S. (2025). Accuracy of Market-Based and Survey-Based Inflation Expectations in Forecasting Russian Inflation. Journal of Applied Economic Research, Vol. 24, No. 4, 1219-1248. https://doi.org/10.15826/vestnik.2025.24.4.040

Article info

Received July 10, 2025; Revised August 6, 2025; Accepted August 20, 2025.

DOI: https://doi.org/10.15826/vestnik.2025.24.4.040

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