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Title:The formation of inflation perceptions: Some empirical facts for European countries PDF Logo
Authors:Lein, Sarah M.
Maag, Thomas
Issue Date:2008
Series/Report no.:KOF working papers // Konjunkturforschungsstelle, Eidgenössische Technische Hochschule Zürich 204
Abstract:This paper investigates how households form their perceptions of consumer price inflation. Using data from the harmonized EU consumer survey, we find that inflation perceptions are inefficient and highly heterogeneous, yet contemporaneously related to the actual rate of inflation. Consequently, we estimate how often households update their beliefs employing Carroll's (2003) epidemiological model. Our results indicate that inflation perceptions are generally less responsive to new information than expectations. Unlike studies on expectations, we cannot confirm that a constant fraction of the population updates information every month. Also, the cross-sectional heterogeneity of perceptions is higher than implied by infrequent updating alone.
Subjects:inflation perceptions
belief formation
sticky information models
Persistent Identifier of the first edition:doi:10.3929/ethz-a-005666792
Document Type:Working Paper
Appears in Collections:KOF Working Papers, KOF Konjunkturforschungsstelle, ETH Zürich

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