Assessing the sensitivity of consumption expenditure to inflation sentiment in post-communist economies

Petar Sorić

Post-Communist Economies, 2013, vol. 25, issue 4, 529-538

Abstract: The aim of this article is to examine the influence of inflation sentiment on aggregate consumption. The study adds to the existing literature by i) emphasising the role of inflation perceptions and expectations in determining consumption patterns, ii) using structural VAR methodology that has not yet been applied in consumer studies, iii) employing an extensive dataset of eight individual post-communist countries (Czech Republic, Estonia, Hungary, Lithuania, Poland, Romania, Slovakia and Slovenia). Using innovation analysis it is shown that the theoretically expected conclusions are valid: consumers instantaneously decrease their consumption expenditure in response to shocks in perceived inflation, while their reaction to shocks in near-term inflation expectations is an abrupt (but temporary) consumption boost.

Date: 2013
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DOI: 10.1080/14631377.2013.844932

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