Inflation expectations after financial crisis: are consumers more forward-looking?

Abstract

In this paper we investigate whether consumer inflation expectations in the E.U. Member States (M.S.) were more forward-looking after the onset of the financial crisis (October 2008–2016) and after the most turbulent times (2013–2016). We compare the results with pre-crisis forward-lookingness (2002–September 2008). Our examination covers the euro area and M.S. with national currencies. We study the properties of expectations, i.e., expectational errors, and macroeconomic efficiency of expectations, as well as estimating the hybrid specification of expectations. We examine panel data. We found that the properties of expectations changed after the crisis sparked off and in the low inflation and deflation environment. We also discovered that formation patterns of expectations within the euro area subsample and non-euro area M.S. sample vary. As far as we know, so far no comparison of expectations properties, especially forward-lookingness among M.S. with and without common monetary policy, has been presented in the literature nor were panel data examined for the post-crisis period. Hence, the paper contributes to the literature on the properties of expectations in the E.U.

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