Inflation Expectations of European Consumers after the Crisis. Do Macro Variables Drive Expectations?

Abstract

This article examines the relationship between consumer expectations and macro variables. The research covers five EU member states: Croatia, the Czech Republic, Hungary, Poland, and Romania in the period from 2011 to 2015. Its aim is to find long-run dependence of expectations and financial and real sphere variables in the post-crisis era. No previous studies for this sample and time span exist: this paper contributes to the strand of the literature detecting formation patterns of expectations. VAR/VEC models are estimated in order to trace impulse response to expectations. Five different stories have been found about expectation formation for each economy.

Keywords:

• consumer inflation expectations
• expectation drivers
• transition economies

JEL Classification:

• C32
• D84
• E58

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. Bulgaria is excluded, as preliminary examination has shown no valid relation of expectations and macro variables. This could be mainly due to currency board regime which diverges from expectation-focused monetary frameworks.

2. Estimates of the degree of Czech consumers’ forward-lookingness start from 8% (Łyziak and Mackiewicz-Łyziak 2014). According to this research, only Polish consumers outperformed Czech consumers. Other studies find Czech consumers the most forward-looking in our sample in the longer run and for recent post-crisis sample (Szyszko and Rutkowska 2017).

3. The Hungarian National Bank conducted an eclectic strategy combining inflation targeting with forint exchange rate vis-à-vis euro stabilization. Exchange rate commitment was abandoned at the beginning of 2008.