Updating Inflation Expectations

KOF working papers No. 301

39 Pages Posted: 28 Mar 2012

See all articles by Michael J. Lamla

Michael J. Lamla

ETH Zurich - KOF Swiss Economic Institute; University of Essex

Samad Sarferaz

ETH Zurich

Date Written: March 28, 2012

Abstract

This paper investigates how inflation expectations evolve. In particular, we analyze the time-varying nature of the propensity to update expectations and its potential determinants. For this purpose we set up a flexible econometric model that tracks the formation of inflation expectations of consumers at each moment in time. We show that the propensity to update inflation expectations changes substantially over time and is related to the quantity and the quality of news.

Keywords: inflation expectation formation, time-varying parameters, Bayesian methods, disagreement, media coverage, stochastic volatility

JEL Classification: E31, E37, E52, D83

Suggested Citation

Lamla, Michael J. and Lamla, Michael J. and Sarferaz, Samad, Updating Inflation Expectations (March 28, 2012). KOF working papers No. 301, Available at SSRN: https://ssrn.com/abstract=2030270 or http://dx.doi.org/10.2139/ssrn.2030270

Michael J. Lamla (Contact Author)

ETH Zurich - KOF Swiss Economic Institute ( email )

Zurich
Switzerland

University of Essex ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

Samad Sarferaz

ETH Zurich ( email )

Leonhardstrasse 21
Zurich, 8092
Switzerland

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