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Inflation Expectations in Latvia: Consumer Survey Based Results

Author

Listed:
  • Konstantins Benkovskis

    (Bank of Latvia)

  • Daina Paula

    (Bank of Latvia)

Abstract

The objective of this study is the quantification of inflation expectations in Latvia using the results of consumer surveys and the assessment of the impact inflation expectations have on actual inflation. In order to attain the objectives set, the authors of the study quantified inflation expectations applying the widely accepted probability approach and produced a small-scale VAR model capturing actual inflation and the quantified inflation expectations. Both the surveyed balance sheet data and quantified values of inflation expectations confirm that inflation expectations strengthened substantially prior to Latvia's accession to the EU. The findings of the VAR model with inflation expectations indicate that inflation expectations have a statistically significant impact on inflation in Latvia. The response of inflation expectations to inflation and domestic demand shocks is positive, although a deviation implies that the response to a domestic demand shock is not statistically significant.

Suggested Citation

  • Konstantins Benkovskis & Daina Paula, 2007. "Inflation Expectations in Latvia: Consumer Survey Based Results," Working Papers 2007/01, Latvijas Banka.
    • Handle: RePEc:ltv:wpaper:200701
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    References listed on IDEAS

    as
    1. Jan Marc Berk, 1999. "Measuring inflation expectations: a survey data approach," Applied Economics, Taylor & Francis Journals, vol. 31(11), pages 1467-1480.
    2. Nielsen, Hannah, 2003. "Inflation Expectations in the EU: Results from Survey Data," SFB 373 Discussion Papers 2003,13, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
    3. Forsells, Magnus & Kenny, Geoff, 2002. "The rationality of consumers' inflation expectations: survey-based evidence for the euro area," Working Paper Series 163, European Central Bank.
    4. Łyziak, Tomasz, 2003. "Consumer inflation expectations in Poland," Working Paper Series 287, European Central Bank.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Konstantins Benkovskis, 2008. "The Role of Inflation Expectations in the New EU Member States: Consumer Survey Based Results," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 58(07-08), pages 298-317, Oktober.
    2. Trond-Arne Borgersen & Roswitha M. King, 2011. "Inflation in Latvia," Eastern European Economics, Taylor & Francis Journals, vol. 49(3), pages 26-53, May.
    3. Aleksejs Melihovs & Anna Zasova, 2007. "Estimation of the Phillips Curve for Latvia," Working Papers 2007/03, Latvijas Banka.

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    More about this item

    Keywords

    inflation expectations; survey data; VAR model;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C83 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Survey Methods; Sampling Methods
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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