Inflation Perception and Anticipation Gaps in the Eurozone

Svatopluk Kapounek and Lubor Lacina

No 2011-05, MENDELU Working Papers in Business and Economics from Mendel University in Brno, Faculty of Business and Economics

Abstract: There is significant empirical evidence that the introduction of the euro led to a significant increase of perceived inflation in most countries. Such an increase and persistence in the perceived inflation might then have an impact on inflation expectations and other macroeconomic variables. The authors have used the short-term Phillips curve to describe the difference between inflation expectations and its current values, subsequently to identify the impact of this difference on other economic indicators. The paper is structured as follows: Section 1 provides an overview of the theory and empiricism on the gap between measured and perceived inflation. Section 2 then builds up the theoretical framework based on the short-term Phillips curve approach and derives two hypotheses, to be tested subsequently. Section 3 provides the methodology. Section 4 presents the modelling and results of the empirical analysis. In section 5 authors compare its results and used methodology with papers and studies on a similar topic. Finally, Section 6 concludes and provides recommendations for the economic policy.

Keywords: monetary integration; perceived and anticipated inflation; adaptive and rational expectations hypothesis; expectations-augmented Phillips curve; stationarity; ADF test (search for similar items in EconPapers)
JEL-codes: E42 (search for similar items in EconPapers)
Pages: 21
Date: 2011-04
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac and nep-mon
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