Are inflation expectations differently formed when countries are part of a Monetary Union?
Independent thesis Advanced level (degree of Master (Two Years)), 20 credits / 30 HE creditsStudent thesis
I study to what extent consumers’ expectations of inflation are formed differently in the short run for countries that belong to a monetary union, which implies a common inflation-targeting central bank, in contrast to countries with national inflation-targeting central banks. I measure if there are differences in consumers’ reactions to inflation deviation from target, persistency of expected inflation and the ability to predict accurate inflation in the respective considered countries. I also measure average deviation and average absolute deviation of actual and expected inflation from the inflation target. The results suggest that the respective country’s average reaction to inflation deviation from target, degree of persistent expectation and the ability to predict accurate inflation rates are in the same range as well as the results for the average and average absolute deviations. Therefore, I conclude that there are no substantial differences in the formation of consumers’ expectations in countries belonging to a monetary union and countries with national inflation-targeting central banks, in the short run.
Place, publisher, year, edition, pages
Actual Inflation, Inflation Expectations, Inflation Target, Monetary Union, Persistency, Prediction, Rational Expectations
IdentifiersURN: urn:nbn:se:uu:diva-219692OAI: oai:DiVA.org:uu-219692DiVA: diva2:702915
Gottfries, Nils, Professor
Waldenström, Daniel, Professor