Modelling the general public's inflation expectations using the Michigan survey data

Arto Luoma and Jani Luoto

Applied Economics, 2009, vol. 41, issue 10, pages 1311-1320

Abstract: In this article we discuss a few models developed to explain the general public's inflation expectations formation and provide some relevant estimation results. Furthermore, we suggest a simple Bayesian learning model which could explain the expectations formation process on the individual level. When the model is aggregated to the population level it could explain not only the mean values, but also the variance of the public's inflation expectations. The estimation results of the mean and variance equations seem to be consistent with the results of the questionnaire studies in which the respondents were asked to report their thoughts and opinions about inflation.

Date: 2009

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