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Inflation Expectation Formation of German Consumers: Rational or Adaptive?

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  • Henry Sabrowski

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    (Institute of Economics, Leuphana University of Lüneburg)

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    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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    Bibliographic 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

    Related research

    Keywords: Inflation expectations; conversion method; survey data; rationality tests;

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    1. Jan Marc Berk, 2002. "Consumers' Inflation Expectations And Monetary Policy In Europe," Contemporary Economic Policy, Western Economic Association International, vol. 20(2), pages 122-132, 04.
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    8. Steffen Henzel & Timo Wollmershäuser, 2005. "Quantifying Inflation Expectations with the Carlson-Parkin Method: A Survey-based Determination of the Just Noticeable Difference," Journal of Business Cycle Measurement and Analysis, OECD Publishing,CIRET, vol. 2005(3), pages 321-352.
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    14. Branch, William A. & Evans, George W., 2006. "A simple recursive forecasting model," Economics Letters, Elsevier, vol. 91(2), pages 158-166, May.
    15. Jan Marc Berk, 1999. "Measuring inflation expectations: a survey data approach," Applied Economics, Taylor & Francis Journals, vol. 31(11), pages 1467-1480.
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    17. Jonung, Lars, 1981. "Perceived and Expected Rates of Inflation in Sweden," American Economic Review, American Economic Association, vol. 71(5), pages 961-68, December.
    18. Carlson, John A & Parkin, J Michael, 1975. "Inflation Expectations," Economica, London School of Economics and Political Science, vol. 42(166), pages 123-38, May.
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