Assessing the Gap between Observed and Perceived Inflation in the Euro Area : Is the Credibility of the HICP at Stake ?
AbstractWe find strong econometric support for a break in the relationship between perceived and HICP inflation in the euro area, triggered by the introduction of euro notes and coins in January 2002. The break is fairly homogeneous across individuals with different socio-economic characteristics. We found no support for the thesis according to which perceptions are systematically formed by frequently purchased products. A similar break is found when national CPIs instead of HICPs are used as benchmarks. The role of the non-inclusion of owner-occupied housing in the HICP was negligible. Therefore the credibility of the HICP per se is not at stake.
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Bibliographic InfoPaper provided by National Bank of Belgium in its series Working Paper Research with number 112.
Length: 42 pages
Date of creation: Apr 2007
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inflation; perceived inflation; panel unit roots tests;
Find related papers by JEL classification:
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
- D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
- 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-2007-04-28 (All new papers)
- NEP-CBA-2007-04-28 (Central Banking)
- NEP-EEC-2007-04-28 (European Economics)
- NEP-MAC-2007-04-28 (Macroeconomics)
- NEP-MON-2007-04-28 (Monetary Economics)
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- Thomas A. Eife & W. Timothy Coombs, 2007.
"Coping with People's Inflation Perceptions during a Currency Changeover,"
0458, University of Heidelberg, Department of Economics, revised Nov 2007.
- Thomas A. Eife & W. Timothy Coombs, 2006. "Coping with People’s Inflation Perceptions During a Currency Changeover," Working Papers 0435, University of Heidelberg, Department of Economics, revised Dec 2006.
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