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

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Abstract

Using quantitative survey data from the Swedish Consumer Tendency Survey as well as a unique data set on media reports about inflation, we analyze the formation process of inflation perceptions and expectations as well as interrelations between the variables. Throughout the analysis, the role of media reports about inflation is emphasized and results for the low inflation period January 1998 to December 2007 are compared to those including the high inflation year 2008. Rejecting rationality, we find that perceptions, but not expectations, are affected asymmetrically by news, where media effects are generally stronger in times of high and volatile inflation. For the low inflation sample period, inflation expectations are more affected by shocks to perceptions than vice versa, but Granger causality runs from expectations to perceptions. Including more volatile inflation, we find more feed-back between the variables and a strong media effect especially on perceptions.

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Paper provided by KOF Swiss Economic Institute, ETH Zurich in its series KOF Working papers with number 11-273.

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Length: 51 pages
Date of creation: Feb 2011
Date of revision:
Handle: RePEc:kof:wpskof:11-273

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Keywords: Inflation expectations; inflation perceptions; media reports;

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  1. Sarah M. Lein & Thomas Maag, 2008. "The Formation of Inflation Perceptions – Some Empirical Facts for European Countries," KOF Working papers 08-204, KOF Swiss Economic Institute, ETH Zurich.
  2. Lena Vogel & Jan-Oliver Menz & Ulrich Fritsche, 2009. "Prospect Theory and Inflation Perceptions - An Empirical Assessment," Macroeconomics and Finance Series 200903, Hamburg University, Department Wirtschaft und Politik.
  3. Christopher D Carroll, 2002. "Macroeconomic Expectations of Households and Professional Forecasters," Economics Working Paper Archive 477, The Johns Hopkins University,Department of Economics.
  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.
  5. Eife, Thomas, 2006. "Currency Changeovers as Natural Experiments," Munich Dissertations in Economics 5839, University of Munich, Department of Economics.
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Cited by:
  1. Pfajfar, Damjan, 2013. "Formation of rationally heterogeneous expectations," Journal of Economic Dynamics and Control, Elsevier, vol. 37(8), pages 1434-1452.

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