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Inflation expectations in the euro area: are consumers rational?

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  • Francisco Dias
  • Cláudia Duarte
  • António Rua

    ()

Abstract

In this paper, we propose a quantitative measure for inflation expectations based on consumer survey data. Thereafter, we proceed to testing the rationality assumption. This issue is of noteworthy interest in its own as it is commonly assumed in the theoretical modelling literature that the rational expectations hypothesis holds. This analysis is conducted for the euro area as a whole, as well as for several member countries, using a sample covering the last two decades. Moreover, we also assess if the conclusions hold when one focuses on the post-euro introduction period.

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File URL: http://hdl.handle.net/10.1007/s10290-010-0058-6
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Bibliographic Info

Article provided by Springer in its journal Review of World Economics.

Volume (Year): 146 (2010)
Issue (Month): 3 (September)
Pages: 591-607

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Handle: RePEc:spr:weltar:v:146:y:2010:i:3:p:591-607

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Related research

Keywords: Inflation expectations; Consumer survey; Probability method; Rationality tests; Common factors; C16; C22; C43; E31;

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References

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  1. G. Rünstler & K. Barhoumi & S. Benk & R. Cristadoro & A. Den Reijer & A. Jakaitiene & P. Jelonek & A. Rua & K. Ruth & C. Van Nieuwenhuyze, 2008. "Short-Term Forecasting of GDP Using Large Monthly Datasets: A Pseudo Real-Time Forecast Evaluation Exercise," Bank of Lithuania Working Paper Series 1, Bank of Lithuania.
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  4. Paquet, Alain, 1992. "Inflationary expectations and rationality," Economics Letters, Elsevier, vol. 40(3), pages 303-308, November.
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  8. Altissimo, Filippo & Cristadoro, Riccardo & Forni, Mario & Lippi, Marco & Veronese, Giovanni, 2006. "New EuroCOIN: Tracking Economic Growth in Real Time," CEPR Discussion Papers 5633, C.E.P.R. Discussion Papers.
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  10. Jushan Bai & Serena Ng, 2000. "Determining the Number of Factors in Approximate Factor Models," Boston College Working Papers in Economics 440, Boston College Department of Economics.
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  12. Magnus Forsells & Geoff Kenny, 2002. "The rationality of consumers' inflation expectations: survey-based evidence for the Euro area," Working Paper Series 163, European Central Bank.
  13. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
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  17. Ciaran Driver & Giovanni Urga, 2004. "Transforming Qualitative Survey Data: Performance Comparisons for the UK," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 66(1), pages 71-89, 02.
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Citations

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Cited by:
  1. Péter Gábriel, 2010. "Household inflation expectations and inflation dynamics," MNB Working Papers 2010/12, Magyar Nemzeti Bank (the central bank of Hungary).
  2. Puah, Chin-Hong & Wong, Shirly Siew-Ling & Habibullah, Muzafar Shah, 2012. "Rationality of business operational forecasts: evidence from Malaysian distributive trade sector," MPRA Paper 37599, University Library of Munich, Germany.
  3. Wong, Shirly Siew-Ling & Puah, Chin-Hong & Shazali, Abu Mansor, 2011. "Survey Evidence on the Rationality of Business Expectations: Implications from the Malaysian Agricultural Sector," MPRA Paper 36661, University Library of Munich, Germany.
  4. Gabriele Galati & Peter Heemeijer & Richhild Moessner, 2011. "How do inflation expectations form? New insights from a high-frequency survey," BIS Working Papers 349, Bank for International Settlements.

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