Households' inflation expectations in Lithuania: A First look and overview

Tomas Reichenbachas ()
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Tomas Reichenbachas: Bank of Lithuania

No 31, Bank of Lithuania Discussion Paper Series from Bank of Lithuania

Abstract: We document a number of novel stylised facts about Lithuanian households' inflation expectations. Inflation expectations of Lithuanian households are significantly above the recent observation of actual inflation. On average, year-on-year inflation was around 4 percent from 2004 to 2023. However, one-year-ahead inflation expectations of households over the same period were on average 16.9 percent. Although we observe a clear upward bias in inflation expectations, there is significant co-movement between actual inflation and inflation expectations of households. Additionally, we find that over the economic boom, inflation expectations are higher than inflation perceptions, a finding that reverses over the economic downturn. We build a VAR model to analyse whether and how inflation, households' inflation expectations/perceptions and unemployment are linked. We show that structural shocks to inflation expectations play a minor role in overall inflation and unemployment dynamics.

Keywords: Households' inflation perceptions; inflation expectations (search for similar items in EconPapers)
JEL-codes: C83 D12 E21 E31 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2023-09-15
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