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Macroeconomic fundamentals and attention: What drives european consumers’ inflation expectations?

Author

Listed:
  • Kučerová, Zuzana
  • Pakši, Daniel
  • Koňařík, Vojtěch

Abstract

Using survey data on consumer inflation expectations in the European Union countries, we investigate the price, macroeconomic, attention, and geopolitical determinants of European consumers’ inflation expectations. We employ panel data regression with both fixed and random effects. We conclude that when consumers in the EU form their expectations regarding future inflation, they are determined not only by past inflation and the general macroeconomic situation, but also by selected attention variables expressing their search queries on the Internet (SVI based on Google Trends), and uncertainty concerning economic policy (EPU) steps and measures. Moreover, our baseline specification also suggests that inflation expectations of consumers in the Central and Eastern European countries are higher than those in Euro Area countries. These findings are robust to multiple specifications using individual survey indicators of expected inflation.

Suggested Citation

  • Kučerová, Zuzana & Pakši, Daniel & Koňařík, Vojtěch, 2024. "Macroeconomic fundamentals and attention: What drives european consumers’ inflation expectations?," Economic Systems, Elsevier, vol. 48(1).
    • Handle: RePEc:eee:ecosys:v:48:y:2024:i:1:s0939362523000924
    DOI: 10.1016/j.ecosys.2023.101153
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    More about this item

    Keywords

    Inflation expectations; Central bank; Monetary policy; Consumer surveys; Google Trends; Economic Policy Uncertainty;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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