Inflation (mis)perceptions in the euro area
AbstractThere has been a growing interest on inflation perceptions in the euro area, in particular, following the euro cash changeover. It has been pointed out that a gap emerged between observed and perceived inflation since the introduction of the euro notes and coins. Such a statement relies on the fact that inflation perceptions, measured by the well-known balance statistic from the European Commission's consumer survey, hiked after January 2002 and remained high thereafter, as opposed to the observed inflation, which has remained fairly stable. In this paper, we discuss the issue of inflation perceptions measurement, by comparing the balance statistic with an alternative refined measure, which is computed using the probability method. We argue that the balance statistic should be used carefully, as it can induce to misleading conclusions. In fact, we provide, for both euro area and country level, evidence showing that, using the proposed alternative measure, the breakdown in the relationship between observed and perceived inflation did not occur at the time of the euro cash changeover.
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Bibliographic InfoPaper provided by Banco de Portugal, Economics and Research Department in its series Working Papers with number w200715.
Date of creation: 2007
Date of revision:
Other versions of this item:
- C16 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Econometric and Statistical Methods; Specific Distributions
- C42 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Survey Methods
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
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