Journal of Business Cycle Measurement and Analysis

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3 times a year
ISSN: 
1729-3626 (online)
ISSN: 
1729-3618 (print)
http://dx.doi.org/10.1787/17293626
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The Journal of Business Cycle Measurement and Analysis has been discontinued as of 24 June 2016. This journal was published jointly with CIRET from 2004 to 2015. For more information see www.ciret.org/jbcy.

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Article
 

Survey Expectations, Rationality and the Dynamics of Euro Area Inflation You do not have access to this content

English
 
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    http://oecd.metastore.ingenta.com/content/3304011ec003.pdf
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Author(s):
Magnus Forsells, Geoff Kenny
12 Dec 2003
Pages:
29
Bibliographic information
No.:
3,
Volume:
2004,
Issue:
1
Pages:
13–41
http://dx.doi.org/10.1787/jbcma-v2004-art3-en

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This paper uses survey data in order to analyse and assess the empirical properties of consumers’ inflation expectations in the euro area and explores their role in explaining the observed dynamics of inflation. The probability approach is used to derive quantitative estimates of euro area inflation expectations from the qualitative data from the European Commission’s Consumer Survey. The paper subsequently analyses the empirical properties of the estimated inflation expectations by considering the extent to which they fulfil some of the necessary conditions for rationality. The results suggest an intermediate form of rationality. In particular, the surveyed expectations are an unbiased predictor of future price developments and they incorporate – though not always completely – the information contained in a broad set of macroeconomic variables. In addition, although persistent deviations between consumers’ expectations and the rational outcome have occurred, consumers are shown to rationally adjust their expectations in order to eventually "weed out" any systematic expectational errors...

 
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