The Formation of Inflation Perceptions - Some Empirical Facts for European Countries

Abstract

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Inflation Perceptions and Expectations in Sweden - Are Media Reports the 'Missing Link'?

“…We thus conclude that while there is some evidence of nonstationarity regarding actual, perceived and expected inflation, it seems that all three variables are cointegrated. This result is in line with findings in Lein and Maag (2008) and Dräger et al (2009) who find evidence of panelcointegration between actual and perceived inflation for European samples.…”

“…Both the normalized MAE (0.40) and RMSE (0.52) are relatively high, considering that inflation perceptions are based on actual inflation and should thus be less prone to inaccuracy than inflation expectations. Lein and Maag (2008) report similar results using Swedish data for the time span of 1993 -2007. With respect to a bias in perceptions, both 12 Weak-form or strong-form efficiency with respect to inflation expectations is also tested by Batchelor and Dua (1987) for the UK, by Thomas (1999), Mankiw et al (2004) and Souleles (2004) for the UK as well as by Forsells and Kenny (2002) and Dias et al (2008) for European economies.…”

“…2 Regarding the formation of inflation perceptions in general, Jonung and Laidler (1988) as well as Lein and Maag (2008) reject rationality of inflation perceptions for a panel of European countries. Similarly, Dräger et al (2009) find evidence of loss aversion with respect to rising inflation and higher availability of price changes in frequently bought goods both before and after the Euro introduction.…”

“…With respect to a bias in perceptions, both 12 Weak-form or strong-form efficiency with respect to inflation expectations is also tested by Batchelor and Dua (1987) for the UK, by Thomas (1999), Mankiw et al (2004) and Souleles (2004) for the UK as well as by Forsells and Kenny (2002) and Dias et al (2008) for European economies. Jonung and Laidler (1988) as well as Lein and Maag (2008) test for strong-form efficiency of inflation perceptions.…”

“…Note that news about longer lasting housing price changes affected forward-looking inflation and Mordonu (2007), Lein and Maag (2008) and Dräger et al (2009). 17 Note that the decrease in centred R 2 from model (1) to models (3), (4), (6) and (7) is due to changes in the significance of the constant, which is not reported here.…”