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European inflation expectations dynamics

Author

Listed:
  • Slacalek, Jirka
  • Fritsche, Ulrich
  • Dovern, Jonas
  • Döpke, Jörg

Abstract

This paper investigates the relevance of the sticky information model of Mankiw and Reis (2002) and Carroll (2003) for four major European economies (France, Germany, Italy and the United Kingdom). As opposed to the benchmark rational expectation models, households in the sticky information environment update their expectations sporadically rather than instantaneously owing to the costs of acquiring and processing information. We estimate two alternative parametrizations of the sticky information model which differ in the stationarity assumptions about the underlying series. Using survey data on households? and experts? inflation expectations, we find that the model adequately captures the dynamics of household inflation expectations. Both parametrizations imply comparable speeds of information updating for the European households as was previously found in the US, on average roughly once a year.

Suggested Citation

  • Slacalek, Jirka & Fritsche, Ulrich & Dovern, Jonas & Döpke, Jörg, 2005. "European inflation expectations dynamics," Discussion Paper Series 1: Economic Studies 2005,37, Deutsche Bundesbank.
    • Handle: RePEc:zbw:bubdp1:4231
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    References listed on IDEAS

    as
    1. Sims, Christopher A., 2005. "Rational inattention: a research agenda," Discussion Paper Series 1: Economic Studies 2005,34, Deutsche Bundesbank.
    2. N. Gregory Mankiw & Ricardo Reis & Justin Wolfers, 2004. "Disagreement about Inflation Expectations," NBER Chapters, in: NBER Macroeconomics Annual 2003, Volume 18, pages 209-270, National Bureau of Economic Research, Inc.
    3. N. Gregory Mankiw & Ricardo Reis, 2002. "Sticky Information versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(4), pages 1295-1328.
    4. Andrew T. Levin & Jeremy M. Piger, 2003. "Is inflation persistence intrinsic in industrial economies?," Working Papers 2002-023, Federal Reserve Bank of St. Louis.
    5. William A. Branch, 2004. "The Theory of Rationally Heterogeneous Expectations: Evidence from Survey Data on Inflation Expectations," Economic Journal, Royal Economic Society, vol. 114(497), pages 592-621, July.
    6. Gerberding, Christina, 2001. "The information content of survey data on expected price developments for monetary policy," Discussion Paper Series 1: Economic Studies 2001,09, Deutsche Bundesbank.
    7. Christopher D. Carroll, 2003. "Macroeconomic Expectations of Households and Professional Forecasters," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(1), pages 269-298.
    8. Sims, Christopher A., 2003. "Implications of rational inattention," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 665-690, April.
    9. repec:bla:econom:v:55:y:1988:i:219:p:317-31 is not listed on IDEAS
    10. N. Gregory Mankiw & Ricardo Reis, 2001. "Sticky Information: A Model of Monetary Nonneutrality and Structural Slumps," NBER Working Papers 8614, National Bureau of Economic Research, Inc.
    11. repec:bla:econom:v:42:y:1975:i:166:p:123-38 is not listed on IDEAS
    12. Hashmat Khan & Zhenhua Zhu, 2002. "Estimates of the Sticky-Information Phillips Curve for the United States, Canada, and the United Kingdom," Staff Working Papers 02-19, Bank of Canada.
    Full references (including those not matched with items on IDEAS)

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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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