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Updating Inflation Expectations

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Abstract

This paper investigates how inflation expectations evolve. In particular, we analyze the time-varying nature of the propensity to update expectations and its potential determinants. For this purpose we set up a flexible econometric model that tracks the formation of inflation expectations of consumers at each moment in time. We show that the propensity to update inflation expectations changes substantially over time and is related to the quantity and the quality of news.

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File URL: http://www.kof.ethz.ch/publications/science/pdf/wp_301.pdf
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Bibliographic Info

Paper provided by KOF Swiss Economic Institute, ETH Zurich in its series KOF Working papers with number 12-301.

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Length: 39 pages
Date of creation: Mar 2012
Date of revision:
Handle: RePEc:kof:wpskof:12-301

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Keywords: inflation expectation formation; time-varying parameters; Bayesian methods; disagreement; media coverage; stochastic volatility.;

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Cited by:
  1. Lena Dräger & Michael Lamla, 2013. "Imperfect Information and Inflation Expectations: Evidence from Microdata," Macroeconomics and Finance Series, Hamburg University, Department Wirtschaft und Politik 201301, Hamburg University, Department Wirtschaft und Politik.
  2. Filippo Lechthaler & Lisa Leinert, 2012. "Moody Oil - What is Driving the Crude Oil Price?," CER-ETH Economics working paper series 12/168, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  3. Dräger, Lena & Lamla, Michael J., 2012. "Updating inflation expectations: Evidence from micro-data," Economics Letters, Elsevier, Elsevier, vol. 117(3), pages 807-810.
  4. Andrade, P. & Le Bihan, H., 2010. "Inattentive professional forecasters," Working papers, Banque de France 307, Banque de France.

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