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Inflation Expectation Formation of German Consumers: Rational or Adaptive?

Author

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  • Henry Sabrowski

    (Institute of Economics, Leuphana University of Lüneburg)

Abstract

This paper analyzes the inflation expectation formation empirically for German consumers. The expectation formation process is analyzed for a representative consumer and for different demographic groups. The results indicate that German consumers are a relatively homogeneous group. There are nevertheless quantitative differences among the groups: Inflation expectations and perceived inflation tend to fall with rising income and unemployed individuals are outliers. Rational inflation expectation is not present for any group. Consumer and expert expectations have short and long run relationships. Evidence for a positive constant gain in the adaptive learning algorithm is given for almost all groups.

Suggested Citation

  • Henry Sabrowski, 2008. "Inflation Expectation Formation of German Consumers: Rational or Adaptive?," Working Paper Series in Economics 100, University of Lüneburg, Institute of Economics.
    • Handle: RePEc:lue:wpaper:100
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    References listed on IDEAS

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    Cited by:

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    2. Petar Sorić, 2013. "Assessing the sensitivity of consumption expenditure to inflation sentiment in post-communist economies," Post-Communist Economies, Taylor & Francis Journals, vol. 25(4), pages 529-538, December.
    3. Alonso, Pablo, 2018. "Creation and Evolution of Inflation Expectations in Paraguay," IDB Publications (Working Papers) 9027, Inter-American Development Bank.
    4. Carlos Medel, 2021. "Searching for the Best Inflation Forecasters within a Consumer Perceptions Survey: Microdata Evidence from Chile," Working Papers Central Bank of Chile 899, Central Bank of Chile.
    5. Carlos Huertas Campos & Eliana González Molano & Cristhian Ruiz Cardozo, 2015. "La formación de expectativas de inflación en Colombia," Borradores de Economia 12699, Banco de la Republica.
    6. Petar Sorić & Ivana Lolić & Mirjana Čižmešija, 2015. "European economic sentiment indicator: An empirical reappraisal," EFZG Working Papers Series 1505, Faculty of Economics and Business, University of Zagreb.
    7. Blanka Škrabic Peric & Petar Soric & Josip Arneric, 2013. "The Fisher effect at the borders of the European Monetary Union: evidence from post-communist countries," Post-Communist Economies, Taylor & Francis Journals, vol. 25(3), pages 309-324, September.
    8. Peng Su & Xiaochun Jiang & Wei Sun, 2018. "The Flexible Acceleration Mechanism of China’s Capital Adjustment with the Goal of Consumption-Driven Sustainable Growth," Sustainability, MDPI, vol. 10(3), pages 1-20, March.
    9. Jiménez Polanco, Miguel Alejandro & Lopez Hawa, Nabil, 2014. "Heterogeneidad y Racionalidad en las Expectativas de Inflación: Evidencia desagregada para República Dominicana [Heterogeneity and Rationality of Inflation Expectations: Disaggregated Evidence for ," MPRA Paper 75912, University Library of Munich, Germany.

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    More about this item

    Keywords

    Inflation expectations; conversion method; survey data; rationality tests;
    All these keywords.

    JEL classification:

    • C42 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Survey Methods
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • 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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