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Inflation Expectation Formation of German Consumers: Rational or Adaptive?

  • Henry Sabrowski

    ()

    (Institute of Economics, Leuphana University of Lüneburg)

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    This paper analyzes the inflation expectation formation empirically for German consumers. The expectation formation process is analyzed for a representative consumer and for different demographic groups. The results indicate that German consumers are a relatively homogeneous group. There are nevertheless quantitative differences among the groups: Inflation expectations and perceived inflation tend to fall with rising income and unemployed individuals are outliers. Rational inflation expectation is not present for any group. Consumer and expert expectations have short and long run relationships. Evidence for a positive constant gain in the adaptive learning algorithm is given for almost all groups.

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    File URL: http://www.leuphana.de/fileadmin/user_upload/Forschungseinrichtungen/ifvwl/WorkingPapers/wp_100_Upload.pdf
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    Paper provided by University of Lüneburg, Institute of Economics in its series Working Paper Series in Economics with number 100.

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    Length: 44 pages
    Date of creation: 21 Oct 2008
    Date of revision:
    Handle: RePEc:lue:wpaper:100
    Contact details of provider: Web page: http://leuphana.de/institute/ivwl.html

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    1. Orphanides, Athanasios & Williams, John C, 2005. "Inflation Scares and Forecast-Based Monetary Policy," CEPR Discussion Papers 4844, C.E.P.R. Discussion Papers.
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    14. Carlson, John A & Parkin, J Michael, 1975. "Inflation Expectations," Economica, London School of Economics and Political Science, vol. 42(166), pages 123-38, May.
    15. Christopher D Carroll, 2002. "Macroeconomic Expectations of Households and Professional Forecasters," Economics Working Paper Archive 477, The Johns Hopkins University,Department of Economics.
    16. Branch, William A. & Evans, George W., 2006. "A simple recursive forecasting model," Economics Letters, Elsevier, vol. 91(2), pages 158-166, May.
    17. Sims, Christopher A., 2003. "Implications of rational inattention," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 665-690, April.
    18. Jan Marc Berk & Gerbert Hebbink, 2006. "The anchoring of European inflation expectations," DNB Working Papers 116, Netherlands Central Bank, Research Department.
    19. Jonung, Lars, 1981. "Perceived and Expected Rates of Inflation in Sweden," American Economic Review, American Economic Association, vol. 71(5), pages 961-68, December.
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