Abstract
This paper uses the European Commission’s Consumer Survey to assess whether inflation expectations have converged and whether inflation uncertainty has diminished following the introduction of the euro in Europe. Consumers’ responses to the survey suggest that inflation expectations depend more on past national inflation rates than on the ECB’s anchor for price stability. Inflation expectations do not converge significantly faster than actual inflation rates. Regarding inflation uncertainty, the data indicate a relationship with country size following the introduction of the euro. This suggests that within EMU, inflation uncertainty may increase in countries that have a smaller influence on ECB policy.
Article PDF
Similar content being viewed by others
Avoid common mistakes on your manuscript.
References
Adam, K., T. Jappelli, A. Menichini, M. Padula, and M. Pagano (2002). Analyse, Compare, and Apply Alternative Indicators and Monitoring Methodologies to Measure the Evolution of Capital Market Integration in the European Union. CSEF Department of Economics and Statistics, University of Salerno, January.
Alberola, E., and J. M. Marqués (1999). On the Relevance and Nature of Regional Inflation Differentials: The Case of Spain. Banco de España Working Paper 9913. Madrid.
Angeloni, I., and M. Ehrmann (2004). Euro Area Inflation Differentials. ECB Working Paper 388. European Central Bank, Frankfurt.
Arnold, I. J. M., and C. Kool (2004). The Role of Inflation Differentials in Regional Adjustment: Evidence from the United States. Kredit und Kapital 37 (1): 62–85.
Aucremanne, L., M. Collin, and T. Stragier (2007). Assessing the Gap between Observed and Perceived Inflation in the Euro Area: Is the Credibility of the HICP at Stake? National Bank of Belgium Working Paper 112. Brussels.
Baele, L., A. Ferrando, P. Hördahl, E. Krylova, and C. Monnet (2004). Measuring Financial Integration in the Euro Area. ECB Occasional Paper 14. Frankfurt am Main.
Ball, L. (1992). Why Does High Inflation Raise Inflation Uncertainty? Journal of Monetary Economics 29 (3): 371–388.
Barro, R. J., and X. Sala-I-Martin (1995). Economic Growth. New York: McGraw-Hill.
Batchelor, R. A., and A. B. Orr (1988). Inflation Expectations Revisited. Economica 55 (219): 317–331.
Berk, J. M. (1999). Measuring Inflation Expectations: A Survey Data Approach. Applied Economics 31 (11): 1467–1480.
Berk, J. M. (2000). Consumers’ Inflation Expectations and Monetary Policy in Europe. De Nederlandsche Bank MEB Series 55. Amsterdam.
Berk, J. M., and G. Hebbink (2006). The Anchoring of European Inflation Expectations. De Nederlandsche Bank Working Paper 116. Amsterdam.
Berk, J. M., and J. Swank (2002). Regional Price Adjustment in a Monetary Union: The Case of EMU. De Nederlandsche Bank MEB Series 7. Amsterdam.
Carlson, J. A., and M. Parkin (1975). Inflation Expectations. Economica 42 (166): 123–138.
Cecchetti, S. G., N. C. Mark, and R. J. Sonora (2002). Price Index Convergence among United States Cities. International Economic Review 43 (4): 1081–1099.
Cukierman, A., and A. Meltzer (1986). A Theory of Ambiguity, Credibility and Inflation under Discretion and Asymmetric Information. Econometrica 54 (5): 1099–1128.
Deroose, S., S. Langedijk, and W. Roeger (2004). Reviewing Adjustment Dynamics in EMU: From Overheating to Overcooling. European Commission Economic Papers 198. Brussels.
Engle, R. F. (1982). Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation. Econometrica 50 (4): 987–1008.
ECB (European Central Bank) (2003). Inflation Differentials in the Euro Area: Potential Causes and Policy Implications. ECB Report. Frankfurt am Main.
ECB (European Central Bank) (2004). Measuring Real Interest Rates in the Euro Area Countries. Monthly Bulletin (September): 32–35.
ECB (European Central Bank) (2007). Measured Inflation and Inflation Perceptions in the Euro Area. Monthly Bulletin (May): 63–72.
Forsells, M., and G. Kenny (2004). Survey Expectations, Rationality and the Dynamics of Euro Area Inflation. Journal of Business Cycle Measurement and Analysis 1 (1): 13–41.
Gadzinski, G., and F. Orlandi (2004). Inflation Persistence in the European Union, the Euro Area and the United States. ECB Working Paper 414. Frankfurt am Main.
Gerberding, C. (2001). The Information Content of Survey Data on Expected Price Developments for Monetary Policy. Economic Research Centre Discussion Paper 9/01. Deutsche Bundesbank, Frankfurt am Main.
Giordani, P., and P. Soderlind (2003). Inflation Forecast Uncertainty. European Economic Review 47 (6): 1037–1059.
Grier, K. B., and M. J. Perry (1998). On Inflation and Inflation Uncertainty in the G7 Countries. Journal of International Money and Finance 17 (4): 671–689.
Hofmann, B., and H. Remsperger (2005). Inflation Differentials among the Euro Area Countries: Potential Causes and Consequences. Deutsche Bundesbank, Paper presented at the joint American Economic Association – American Committee for Asian Economic Studies session The Theory of Optimum Currency Areas Revisited, ASSA Annual Meeting, Philadelphia, 8 January 2005.
Honohan, P., and P. R. Lane (2003). Divergent Inflation Rates in EMU. Economic Policy 18 (37): 357–394.
Ortega, E. (2003). Persistent Inflation Differentials in Europe. Banco de España Working Paper 0305. Madrid.
Paloviita, M. (2004). Inflation Dynamics in the Euro Area and the Role of Expectations: Further Results. Bank of Finland Discussion Paper 21. Helsinki.
Reckwerth, J. (1997). Inflation and Output in Germany: The Role of Inflation Expectations. Deutsche Bundesbank Discussion Paper 5/97. Frankfurt am Main.
Rogers, J. H. (2001). Price Level Convergence, Relative Prices, and Inflation in Europe. Board of Governors of the Federal Reserve System International Finance Discussion 699. Washington, D.C.
Author information
Authors and Affiliations
Corresponding author
Additional information
JEL no.
D84, E31, E58
About this article
Cite this article
Arnold, I., Lemmen, J. Inflation Expectations and Inflation Uncertainty in the Eurozone: Evidence from Survey Data. Rev World Econ 144, 325–346 (2008). https://doi.org/10.1007/s10290-008-0149-9
Issue Date:
DOI: https://doi.org/10.1007/s10290-008-0149-9