European inflation expectations dynamics (original) (raw)

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The Dynamics of European Inflation Expectations

B E Journal of Macroeconomics, 2008

This paper investigates the relevance of the sticky information model of and for four major European economies (France, Germany, Italy and the United Kingdom). As opposed to the benchmark rational expectation models, households in the sticky information environment update their expectations sporadically rather than instantaneously owing to the costs of acquiring and processing information. We estimate two alternative parametrizations of the sticky information model which differ in the stationarity assumptions about the underlying series. Using survey data on households' and experts' inflation expectations, we find that the model adequately captures the dynamics of household inflation expectations. Both parametrizations imply comparable speeds of information updating for the European households as was previously found in the US, on average roughly once a year.

Augmented information in a theory of ambiguity, credibility and inflation

1988

The pa per exanines the phenomenon of 'rFed Watching" within the context of a nacroecononic policy game. Unllke prevlous policy gane models, j.ndlvlduals are allowed to acquire information about noneNary growth in addloion to lhe hlstorical data. Agentrs declslons ape based on the oppontunity coBgs of resources expended !o augnent theirl lnformatlon set. Incorporated into lhe -Cuikerman and Meltzer model of asymmegplc lnforma|ion, lhe public's optimlzlng behavior nakes Nhe agenlrs informatlon set a sUra0egic varlabLe. In bhis settlng, it ls shown that individuals strategic behavior can inftuence lhe moneiary authoriLyts strategy with respect Uo nonelar"y gnovrih -conLrol. Flrt,her, the policymaker strabeglcally chooses the conlrol varialtce of money Srowt,h to lnfLuence agentrs i nformal lon-see kj.ng behavior.

How well does sticky information explain the dynamics of inflation, output, and real wages?

Journal of Economic Dynamics and Control, 2012

This paper finds that a model with sticky information is less successful than a standard model featuring nominal rigidities, inflation indexation, and habits in generating the dynamics triggered by technology shocks, as estimated by a vector autoregression using U.S. macroeconomic data. The real wage responses after a permanent increase in productivity clearly favor the standard model. The sticky information model fails to replicate the observed inertial response in the real wage, whereas the standard model relies on inflation indexation in wage-setting to achieve a better fit. The two models are, however, statistically equivalent after a shock in monetary policy.

Sticky information vs. Backward-looking indexation: Inflation inertia in the US Extended version

2009

This paper compares two approaches towards the empirical inertia of inflation and output. Two variants that produce persistence are added to a baseline DSGE model of sticky prices: 1) sticky information applied to firms, workers, and households; and 2) a backward-looking inflation indexation along with habit formation. The rival models are then estimated using U.S. data in order to determine their plausibility. It is shown that the sticky information model is better at predicting inflation, wage inflation, and the degree of price stickiness. Output dynamics, however, are better explained by habit persistence.

Updating inflation expectations

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Sticky information vs. Backward-looking indexation: Inflation inertia in the U.S

2009

This paper compares two approaches towards the empirical inertia of inflation and output. Two variants that produce persistence are added to a baseline DSGE model of sticky prices: 1) sticky information applied to firms, workers, and households; and 2) a backward-looking inflation indexation along with habit formation. The rival models are then estimated using U.S. data in order to determine their plausibility. It is shown that the sticky information model is better at predicting inflation, wage inflation, and the degree of price stickiness. Output dynamics, however, are better explained by habit persistence.

Sticky Information Phillips Curves: European Evidence

Journal of Money, Credit and Banking, 2008

We estimate the sticky information Phillips curve model of Mankiw and Reis (2002) using survey expectations of professional forecasters from four major European economies. Our estimates imply that inflation expectations in France, Germany and the United Kingdom are updated about once a year, in Italy about once each six months.

The phillips curve and information rigidity In Brazil

Economia Aplicada, 2012

This work aims at testing the null hypothesis of no sticky information against the alternative of sticky information using Brazilian data. The rejection of the null hypothesis allows us to derive the expected time between information updates. The median of market participants' predictions collected by Gerin/Bacen is used as a proxy to firms' expectation contained in the sticky information version of the Phillips curve. Our estimates imply that inflation expectations in Brazil are updated about once each five quarters, which in part can be attributed to reduced uncertainty about Brazilian inflation in the period of analysis.