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Inflation expectations in the euro area: Are consumers rational?

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  • Francisco Craveiro Dias
  • Cláudia Duarte
  • António Rua

Abstract

In this paper, we propose a quantitative measure for inflation expectations based on consumer survey data. Thereafter, we proceed to testing the rationality assumption. This issue is of noteworthy interest in its own as it is commonly assumed in the theoretical modelling literature that the rational expectations hypothesis holds. This analysis is conducted for the euro area as a whole, as well as for several member countries, using a sample covering the last two decades. Moreover, we also assess if the conclusions hold when one focuses on the post-euro introduction period.

Suggested Citation

  • Francisco Craveiro Dias & Cláudia Duarte & António Rua, 2008. "Inflation expectations in the euro area: Are consumers rational?," Working Papers w200823, Banco de Portugal, Economics and Research Department.
  • Handle: RePEc:ptu:wpaper:w200823
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Christina Strobach & Carin van der Cruijsen, 2015. "The formation of European inflation expectations: One learning rule does not fit all," DNB Working Papers 472, Netherlands Central Bank, Research Department.
    2. Piotr Białowolski, 2016. "The influence of negative response style on survey-based household inflation expectations," Quality & Quantity: International Journal of Methodology, Springer, vol. 50(2), pages 509-528, March.
    3. Péter Gábriel, 2010. "Household inflation expectations and inflation dynamics," MNB Working Papers 2010/12, Magyar Nemzeti Bank (Central Bank of Hungary).
    4. Puah, Chin-Hong & Wong, Shirly Siew-Ling & Habibullah, Muzafar Shah, 2012. "Rationality of business operational forecasts: evidence from Malaysian distributive trade sector," MPRA Paper 37599, University Library of Munich, Germany.
    5. repec:prg:jnlpep:v:2017:y:2017:i:3:id:614:p:286-299 is not listed on IDEAS
    6. Chin-Hong Puah & Shirly Siew-Ling Wong & Venus Khim-Sen Liew, 2013. "Testing rational expectations hypothesis in the manufacturing sector in Malaysia," Journal of Business Economics and Management, Taylor & Francis Journals, vol. 14(2), pages 303-316, April.
    7. Ornela SHALARI & Fejzi KOLANECI, 2014. "Statistical analysis of the inflation in the case of Albania," EuroEconomica, Danubius University of Galati, issue 2(33), pages 67-77, November.
    8. Wong, Shirly Siew-Ling & Puah, Chin-Hong & Shazali, Abu Mansor, 2011. "Survey Evidence on the Rationality of Business Expectations: Implications from the Malaysian Agricultural Sector," MPRA Paper 36661, University Library of Munich, Germany.
    9. Peter, Eckley, 2015. "(Non)rationality of consumer inflation perceptions," MPRA Paper 77082, University Library of Munich, Germany.
    10. Gabriele Galati & Peter Heemeijer & Richhild Moessner, 2011. "How do inflation expectations form? New insights from a high-frequency survey," DNB Working Papers 283, Netherlands Central Bank, Research Department.

    More about this item

    JEL classification:

    • C16 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Econometric and Statistical Methods; Specific Distributions
    • C20 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - General
    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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