Eurozone or National Inflation Projections: Which has Greater Impact on Consumer Expectations?

We compare the dependence of consumer inflation expectations on European Central Bank (ECB) inflation projections with that on national central bank (NCB) projections in four economies: Austria, Belgium, Finland, and Germany. We aim to assess whether the information published by central banks affects consumers, and whether inflation projections published by NCBs are more relevant to consumers than those published for the entire Eurozone. Inflation expectations were obtained from the Business and Consumer Surveys conducted by the Directorate General for Economic and Financial Affairs of the European Commission and quantified using the probabilistic method. The methodology covers: (1) forecast encompassing tests, (2) the Granger causality test, and (3) impulse response analysis complemented by (4) forecast error variance decomposition. The results suggest that the ECB outlook constitutes a more important factor in expectation formation. This article adds to the existing literature by comparing the impact of common and national projections on consumer expectations. Key words: Inflation expectations, Inflation projections, Expectation surveys. JEL: E52, E58, E61.