Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/50341
Authors: 
Lein, Sarah M.
Maag, Thomas
Year of Publication: 
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
JEL: 
E31
E50
D83
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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