Inflation Expectation Formation of German Consumers: Rational or Adaptive?

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Inflation Expectation Formation of German Consumers: Rational or Adaptive?

Author Info

Henry Sabrowski () (Institute of Economics, Leuphana University of Lüneburg)

Abstract

This paper analyzes the inflation expectation formation empirically for German consumers. The expectation formation process is analyzed for a representative consumer and for different demographic groups. The results indicate that German consumers are a relatively homogeneous group. There are nevertheless quantitative differences among the groups: Inflation expectations and perceived inflation tend to fall with rising income and unemployed individuals are outliers. Rational inflation expectation is not present for any group. Consumer and expert expectations have short and long run relationships. Evidence for a positive constant gain in the adaptive learning algorithm is given for almost all groups.

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Publisher Info
Paper provided by University of Lüneburg, Institute of Economics in its series Working Paper Series in Economics with number 100.

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Length: 44 pages
Date of creation: 21 Oct 2008
Date of revision:
Handle: RePEc:lue:wpaper:100

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Web page: http://leuphana.de/institute/ivwl.html

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Find related papers by JEL classification:
C42 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Survey Methods
D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

This paper has been announced in the following NEP Reports:

NEP-ALL-2008-10-28 (All new papers)
NEP-CBA-2008-10-28 (Central Banking)
NEP-MAC-2008-10-28 (Macroeconomics)
NEP-MON-2008-10-28 (Monetary Economics)

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