Advanced Search
MyIDEAS: Login

What drives inflation perceptions? A dynamic panel data analysis

Contents:

Author Info

  • Bj�rn D�hring
  • Aurora Mordonu
Registered author(s):

    Abstract

    At the moment of the euro cash changeover, inflation perceptions in the euro area deviated from measured inflation, and in some euro-area Member States in a persistent way. In recent years, a growing body of literature has developed on the factors that might explain this deviation. This paper formally tests various explanations advanced in this literature. It adopts a cross-country perspective at the level of the euro area which is empirically implemented through a dynamic panel data model. Inflation perceptions are found to be highly persistent (the autoregressive term is large and statistically highly significant). In contrast to much of the - descriptive - literature, an index of "out-of-the-pocket expenditure" is found not to explain inflation perceptions better than does the all-items HICP index. As suggested by psychological experiments, inflation expectations seem to contribute to the formation of inflation perceptions, although to a limited extent. Prices of residential real estate contribute significantly to inflation perceptions, suggesting that households have a broader view of the cost of living when forming inflation perceptions. Our results have implications for policy, for the further research agenda and for the development of statistics. In particular, the persistence of inflation perceptions makes us think that communication efforts prior to euro introduction are essential to anchor perceptions. Once perceptions increase, it will be much harder to bring them back in line with measured inflation.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://ec.europa.eu/economy_finance/publications/publication9575_en.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission in its series European Economy - Economic Papers with number 284.

    as in new window
    Length: 27 pages
    Date of creation: Jul 2007
    Date of revision:
    Handle: RePEc:euf:ecopap:0284

    Contact details of provider:
    Postal: Coomunivcations Unit, B-1049 Bruxelles / Brussels
    Fax: +32 2 298.08.23
    Email:
    Web page: http://ec.europa.eu/economy_finance/index_en.htm
    More information through EDIRC

    Related research

    Keywords: inflation; perceived inflation; dynamic panel data model; euro cash changeover; D�hring; Mordonu;

    Find related papers by JEL classification:

    References

    No references listed on IDEAS
    You can help add them by filling out this form.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Duffy, David & Lunn, Peter D., 2009. "The Misperception of Inflation by Irish Consumers," The Economic and Social Review, Economic and Social Studies, vol. 40(2), pages 139–163.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:euf:ecopap:0284. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ECFIN INFO).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.