Assessing Market Expectations on Exchange Rates and Inflation : A Pilot Forecasting System for Bulgaria

Econometric forecasting models typically perform bad in volatile environments as they are often present in economies in transition. Since forecasts of key macroeconomic variable are inevitable as guidelines for economic policy, one might alternatively make attempts at measuring market participants' expectations or conduct surveys. However, often financial markets are underdeveloped and regular surveys are unavailable in transition countries. In this paper we propose to conduct experimental stock markets to reveal market participants' expectations. We present the results from a series of pilot markets conducted in Bulgaria throughout 2002 indicating that the method could be useful especially for transition countries