Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/103178
Authors: 
Vogel, Lena
Menz, Jan-Oliver
Fritsche, Ulrich
Year of Publication: 
2009
Series/Report no.: 
DEP (Socioeconomics) Discussion Papers, Macroeconomics and Finance Series 3/2009
Abstract: 
Building on the hypotheses of loss aversion with respect to price increases and availability of frequently bought goods, Brachinger (2006,2008) constructs an alternative index of perceived inflation (IPI), which can reproduce the jump in the measure for perceived inflation after the Euro introduction in Germany that was not observable in standard HICP inflation. We test the hypotheses of Prospect Theory with regard to households’ inflation perceptions underlying Brachinger’s IPI in a panel estimation for 12 European countries. There is evidence that perceptions react more strongly to ‘losses’ in inflation than to ‘gains’ before the Euro cash changeover, but not afterwards. Moreover, we find empirical support for the availability hypothesis, stating that frequently bought goods have a stronger influence on inflation perceptions than the overall price index.
Subjects: 
Inflation Perceptions
Prospect Theory
Dynamic Panel
JEL: 
D81
D82
E52
C33
Document Type: 
Working Paper

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