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Consumers' Inflation Expectations and Monetary Policy in Europe

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Author Info
J.M. Berk

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Abstract

This paper analyses the effects of monetary policy decisions on inflation expectations of European consumers. Using a novel approach that does not assume unbiasedness of expectations, which makes use of survey data on expected future as well as perceived past price developments and allows for non-normal peakedness and asymmetry, we convert qualitative survey responses of consumers in various European countries into quantitative time series of inflation expectations. After checking the rationality of the constructed expectations measures, we investigate the effects of unanticipated movements in interest rates and inflation on inflation expectations across European countries. We inter alia seek to explore whether the reaction of consumers in countries with more credible central banks differs from the reaction of consumers in less credible countries.

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Publisher Info
Paper provided by Netherlands Central Bank in its series DNB Staff Reports (discontinued) with number 55.

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Length: 28 pages
Date of creation: 2000
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Handle: RePEc:dnb:staffs:55

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Web page: http://www.dnb.nl/en/
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Related research
Keywords: Inflation expectations; Survey data; Monetary policy;

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Find related papers by JEL classification:
C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Dasgupta, Susmita & Lahiri, Kajal, 1992. "A Comparative Study of Alternative Methods of Quantifying Qualitative Survey Responses Using NAPM Data," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(4), pages 391-400, October.
  2. Hasan Bakhshi & Anthony Yates, . "Are UK inflation expectations rational?," Bank of England working papers 81, Bank of England. [Downloadable!]
  3. Batchelor, R. A., 1982. "Expectations, output and inflation : The European experience," European Economic Review, Elsevier, vol. 17(1), pages 1-25. [Downloadable!] (restricted)
  4. Dickey, David A & Pantula, Sastry G, 2002. "Determining the Order of Differencing in Autoregressive Processes," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 18-24, January.
  5. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July. [Downloadable!] (restricted)
  6. Ben S. Bernanke & Frederic S. Mishkin, 1997. "Inflation Targeting: A New Framework for Monetary Policy?," NBER Working Papers 5893, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  7. David Barr & John Campbell, . "Inflation, real interest rates and the bond market: a study of UK nominal and index-linked Government bond prices," CERF Discussion Paper Series 95-09, Economics and Finance Section, School of Social Sciences, Brunel University.
    Other versions:
  8. Foster, John & Gregory, Mary, 1977. "Inflation Expectations: The Use of Qualitative Survey Data," Applied Economics, Taylor and Francis Journals, vol. 9(4), pages 319-29, December.
  9. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August. [Downloadable!] (restricted)
    Other versions:
  10. Berk, Jan Marc, 1999. "Measuring Inflation Expectations: A Survey Data Approach," Applied Economics, Taylor and Francis Journals, vol. 31(11), pages 1467-80, November. [Downloadable!] (restricted)
  11. Fischer, Andreas M, 1989. "Unit Roots and Survey Data," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 51(4), pages 451-63, November.
  12. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March. [Downloadable!] (restricted)
  13. Batchelor, R A & Dua, P, 1987. "The Accuracy and Rationality of UK Inflation Expectations: Some Quantitative Evidence," Applied Economics, Taylor and Francis Journals, vol. 19(6), pages 819-28, June.
  14. Yin-Wong Cheung & Menzie D. Chinn, 1997. "Integration, Cointegration and the Forecast Consistency of Structural Exchange Rate Models," NBER Working Papers 5943, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  15. Engsted, T, 1991. "A Note on the Rationality of Survey Inflation Expectations in the United Kingdom," Applied Economics, Taylor and Francis Journals, vol. 23(7), pages 1269-75, July.
  16. Alesina, Alberto & Summers, Lawrence H, 1993. "Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(2), pages 151-62, May. [Downloadable!] (restricted)
  17. Batchelor, Roy & Dua, Pami, 1992. "Survey Expectations in the Time Series Consumption Function," The Review of Economics and Statistics, MIT Press, vol. 74(4), pages 598-606, November. [Downloadable!] (restricted)
  18. Batchelor, R A, 1986. "Quantitative v. Qualitative Measures of Inflation Expectations," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 48(2), pages 99-120, May.
  19. Evans, George & Gulamani, Riyaz, 1984. "Tests for Rationality of the Carlson-Parkin Inflation Expectations Data," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 46(1), pages 1-19, February.
  20. James Chan-Lee, 1980. "A review of recent work in the area of inflationary expectations," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 116(1), pages 45-86, March. [Downloadable!] (restricted)
  21. Balcombe, Kelvin, 1996. "The Carlson-Parkin method applied to NZ price expectations using QSBO survey data," Economics Letters, Elsevier, vol. 51(1), pages 51-57, April. [Downloadable!] (restricted)
  22. Bagliano, Fabio C. & Favero, Carlo A., 1999. "Information from financial markets and VAR measures of monetary policy," European Economic Review, Elsevier, vol. 43(4-6), pages 825-837, April. [Downloadable!] (restricted)
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  23. Menil, George & Bhalla, Surjit S, 1975. "Direct Measurement of Popular Price Expectations," American Economic Review, American Economic Association, vol. 65(11), pages 169-80, March. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Angelo M. Fasolo & Marcelo Savino Portugal, 2003. "Imperfect Rationality and Inflationary Inertia: a New Estimation of the Phillips Curve for Brazil," Anais do XXXI Encontro Nacional de Economia [Proceedings of the 31th Brazilian Economics Meeting] b34, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics]. [Downloadable!]
  2. Ricardo Mestre, 2007. "Are survey-based inflation expectations in the euro area informative," Working Paper Series 721, European Central Bank. [Downloadable!]
  3. Marcelo Savino Portugal & Angelo Marsiglia Fasolo, 2004. "Imperfect Rationality and Inflationary Inertia: A New Estimation of the Phillips Curve for Brazil," Econometric Society 2004 Latin American Meetings 5, Econometric Society. [Downloadable!]
  4. Wilbert van der Klaauw & Wändi Bruine de Bruin & Giorgio Topa & Simon Potter & Michael Bryan, 2008. "Rethinking the measurement of household inflation expectations: preliminary findings," Staff Reports 359, Federal Reserve Bank of New York. [Downloadable!]
  5. Jan Marc Berk & Gerbert Hebbink, 2006. "The anchoring of European inflation expectations," DNB Working Papers 116, Netherlands Central Bank, Research Department. [Downloadable!]
  6. Gerberding, Christina, 2001. "The information content of survey data on expected price developments for monetary policy," Discussion Paper Series 1: Economic Studies 2001,09, Deutsche Bundesbank, Research Centre. [Downloadable!]
  7. Ivo J. M. Arnold & Jan J.G. Lemmen, 2006. "Inflation Expectations and Inflation Uncertainty in the Eurozone: Evidence from Survey Data," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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