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The Role of Inflation Expectations in the New EU Member States: Consumer Survey Based Results



The objective of this paper is to analyze the link between inflation expectations and actual inflation in the New EU Member States (NMS). To achieve this goal, the results of a qualitative consumer survey were transformed into a quantitative measure of inflation expectations using the Carlson-Parkin approach. Afterwards, small-scale VAR models capturing actual inflation and inflation expectations were produced. Both the survey data and the quantified values of inflation expectations confirm that inflation expectations increased substantially prior to the NMS accession to the EU (in the case of Slovenia prior to accession to the EMU), with the expected inflation rate surging notably above the observed price increases. The findings of the VAR models indicate that inflation expectations have a positive impact on actual inflation in almost all the NMS; however, the potential problems of omitted variables and short sample period reduce the significance of this result.

Suggested Citation

  • Konstantins Benkovskis, 2008. "The Role of Inflation Expectations in the New EU Member States: Consumer Survey Based Results," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 58(07-08), pages 298-317, Oktober.
  • Handle: RePEc:fau:fauart:v:58:y:2008:i:7-8:p:298-317

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    References listed on IDEAS

    1. Mojon, Benoît & Peersman, Gert, 2001. "A VAR description of the effects of monetary policy in the individual countries of the euro area," Working Paper Series 0092, European Central Bank.
    2. Magnus Forsells & Geoff Kenny, 2004. "Survey Expectations, Rationality and the Dynamics of Euro Area Inflation," Journal of Business Cycle Measurement and Analysis, OECD Publishing, Centre for International Research on Economic Tendency Surveys, vol. 2004(1), pages 13-41.
    3. Peersman, Gert & Smets, Frank, 2001. "The monetary transmission mechanism in the euro area: more evidence from VAR analysis," Working Paper Series 0091, European Central Bank.
    4. Jan Marc Berk, 1999. "Measuring inflation expectations: a survey data approach," Applied Economics, Taylor & Francis Journals, vol. 31(11), pages 1467-1480.
    5. Frommel, Michael & Schobert, Franziska, 2006. "Exchange rate regimes in Central and East European countries: Deeds vs. words," Journal of Comparative Economics, Elsevier, vol. 34(3), pages 467-483, September.
    6. Maritta Paloviita, 2006. "Inflation Dynamics in the Euro Area and the Role of Expectations," Empirical Economics, Springer, vol. 31(4), pages 847-860, November.
    7. Łyziak, Tomasz, 2003. "Consumer inflation expectations in Poland," Working Paper Series 287, European Central Bank.
    8. Konstantins Benkovskis & Daina Paula, 2007. "Inflation Expectations in Latvia: Consumer Survey Based Results," Working Papers 2007/01, Latvijas Banka.
    9. Reckwerth, Jürgen, 1997. "Inflation and output in Germany: The role of inflation expectations," Discussion Paper Series 1: Economic Studies 1997,05e, Deutsche Bundesbank.
    10. Paloviita, Maritta & Virén, Matti, 2005. "The role of expectations in the inflation process in the euro area," Research Discussion Papers 6/2005, Bank of Finland.
    11. Batchelor, Roy A & Orr, Adrian B, 1988. "Inflation Expectations Revisited," Economica, London School of Economics and Political Science, vol. 55(219), pages 317-331, August.
    12. Carlson, John A & Parkin, J Michael, 1975. "Inflation Expectations," Economica, London School of Economics and Political Science, vol. 42(166), pages 123-138, May.
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    Cited by:

    1. Tomislav Globan & Vladimir Arčabić & Petar Sorić, 2016. "Inflation in New EU Member States: A Domestically or Externally Driven Phenomenon?," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 52(1), pages 154-168, January.
    2. Péter Gábriel, 2010. "Household inflation expectations and inflation dynamics," MNB Working Papers 2010/12, Magyar Nemzeti Bank (Central Bank of Hungary).
    3. Magdalena Szyszko, 2013. "The interdependences of central bank’s forecasts and inflation expectations of consumers," Bank i Kredyt, Narodowy Bank Polski, vol. 44(1), pages 33-66.
    4. repec:fau:fauart:v:67:y:2017:i:3:p:221-249 is not listed on IDEAS
    5. Andrejs Bessonovs & Olegs Tkacevs, 2016. "Relationship Between Inflation and Economic Activity and Its Variation Over Time in Latvia," Working Papers 2016/03, Latvijas Banka.

    More about this item


    inflation expectations; survey data; VAR model;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C42 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Survey Methods
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation


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