Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/200826 
Year of Publication: 
2018
Citation: 
[Journal:] KDI Journal of Economic Policy [ISSN:] 2586-4130 [Volume:] 40 [Issue:] 3 [Publisher:] Korea Development Institute (KDI) [Place:] Sejong [Year:] 2018 [Pages:] 45-68
Publisher: 
Korea Development Institute (KDI), Sejong
Abstract: 
We uncover a nexus between actual inflation, inflation perceptions and expectations in Korea through analyzing micro as well as aggregate data from the Consumer Survey. We document two novel findings. First, households' subjective perceptions of inflation exert more impact on expectation formation than actual inflation. Second, inflation perceptions are broadly in line with the trajectory of the inflation trend. This is attributable to the fact that changes in actual inflation have been generated mainly by the consumption items whose price changes are perceived more sensitively as those items are frequently bought or have a larger share in household expenditures. Conducting a cross-country comparison, we find that information rigidity in expectation formation process and the nexus between perceptions and expectations of inflation prove to be stronger in Korea. Additionally, we reconfirm the existing finding that the scope of information utilized for forming inflation expectations is fairly circumscribed.
Subjects: 
Inflation Expectations
Inflation Perceptions
Expectation Formation
Information Rigidity
Monetary Policy
JEL: 
D84
E31
E52
Persistent Identifier of the first edition: 
Creative Commons License: 
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Document Type: 
Article

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