Index of perceived inflation or EU consumer surveys?

Intereconomics

Volumn 41, Issue 3, 2006, Pages 142-150

  Hoffmann, Johannes ^a   Leifer, Hans Albert ^a   Lorenz, Andreas ^a  

^a DEUTSCHE BUNDESBANK   (Germany)

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EID: 33746893746     PISSN: 00205346     EISSN: 1613964X     Source Type: Journal    
DOI: 10.1007/s10272-006-0176-5     Document Type: Article

References (34)

1. This is a slightly revised version of "Index der wahrgenommenen Inflation oder EU-Verbraucherumfragen. Zu einem Ansatz von Professor H. W. Brachinger", published in Wirtschaftsdienst, Vol. 85, No.11, November 2005, pp. 706-714.
2. On Brachinger's index see also J. Hinze: Wahre Teuerungsrate - Divergenz zwischen Preismessung und Inflationswahrnehmung, in: Wirtschaftsdienst, Vol. 86, No. 2, February 2006, pp. 125-131.
3. See Statistisches Bundesamt: Wahrgenommene Inflation mehr als viermal so hoch wie amtliche Inflationsrate, press release of 27 September 2005
4. H. W. Brachinger: Der Euro als Teuro? Die wahrgenommene Inflation in Deutschland, in: Wirtschaft und Statistik, No. 9, 2005, pp. 999-1013
5. S. Bechtold, G. Elbel, H.-P. Hannappel: Messung der wahrgenommenen Inflation in Deutschland: Die Ermittlung der Kaufhäufigkeiten durch das Statistische Bundesamt, in: Wirtschaft und Statistik, No. 9; 2005, pp. 989-998.
6. See also H: W. Brachinger: Der Euro im Kleid des Teuro? Messung der wahrgenommenen Inflation in Deutschland, in: Neue Zürcher Zeitung, No. 231 of 4 October 2005.
7. Professor Brachinger had already provided an account of the basic ideas (although not of the results of his calculations) in a number of publications and lectures. H. W. Brachinger: Euro gleich Teuro - so falsch ist das gar nicht, in: Neue Zürcher Zeitung, No. 224 of 25 September 2004
8. idem: Euro gleich Teuro: Wahrgenommene versus gemessene Inflation, lecture at Statistik Austria, October 2004
9. idem: Euro gleich Teuro: Wahrgenommene versus gemessene Inflation, in: G. Greulich, M. Lösch, C. Müller, W. Stier (eds): Empirische Konjunktur- und Wirtschaftsforschung, Festschrift for Bernd Schips on the occasion of his 65th birthday, Zurich 2005, pp. 11-30
10. idem: Measuring Perceived Inflation: A Prospect Theory Approach, lecture at the 55th World Congress of the International Statistical Institute (ISI), Sydney April 2005.
11. H. W. Brachinger: Der Euro als Teuro? Die wahrgenommene ..., op. cit., p. 999.
12. Statistisches Bundesamt: Wahrgenommene Inflation ..., op. cit.
13. See D. Kahneman, A. Tversky: Loss aversion in riskless choice: A reference-dependent model, in: Quarterly Journal of Economics, Vol. 106, No. 4, 1991, pp. 1039-1061.
14. A US study on the purchasing behaviour of households, however, expected to find, but did not find any evidence of asymmetric responses to increasing and decreasing prices! See S. Hoch, X. Dreze, M. Purk: EDLP, Hi-Lo, and margin arithmetic, in: Journal of Marketing, Vol. 58, 1994, pp. 16-27.
15. See D. Levy, H. Chen, S. Ray, M. Bergen: Asymmetric price adjustment "in the small": An implication of rational inattention, Bar-Ilan University and Emory University Working Paper, 2005.
16. See S. Bechtold, G. Elbel, H.-P. Hannappel, op. cit.
17. See ibid., p. 992.
18. Table 1 shows this for all three variants. Strictly speaking, the average prices should be calculated as geometric means and not - as in Brachinger - as arithmetic means. Given low inflation rates, the arithmetic mean is an adequate approximation, however.
19. See H. W. Brachinger: Der Euro als Teuro? Die wahrgenommene ..., op. cit., p. 1011.
20. Loc. cit.
21. Loc. cit.
22. If it is assumed in Table 1, for example, that the price remains unchanged from period 9 onwards, according to Brachinger's preferred model it would take well over 400 periods before the perceived inflation rate fell back below 1%.
23. Technically speaking, the generalised anchoring effect postulated by Brachinger creates additional persistence in the time series of perceived inflation, since shocks to perceived inflation continue to have an impact on the level of the time series for a long time. The particular modelling of the introduction of the euro on the formation of the comparative prices reinforces persistence with regard to the euro price effects.
24. Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung: Die Chancen nutzen - Reformen mutig voranbringen, Jahresgutachten 2005/06, Bundestagsdrucksache 16/65 (2005), p. 413.
25. See H. W. Brachinger: Der Euro als Teuro? Die wahrgenommene ..., op. cit., p. 1000.
26. See, however, C. Gerberding: Household versus expert forecasts of inflation: New evidence from European survey data, paper presented at the NBP workshop on "The role of inflation expectations in modelling and monetary policy making", Warschau, 9 - 10 February, 2006, for a recent transformation of the survey balances into an estimate of perceived inflation, which gives similar answers as our approach.
27. H. W. Brachinger: Der Euro als Teuro? Die wahrgenommene ..., op. cit, p. 1002.
28. Although the average weighted balance shows a positive value for the first nine months of 2005, this is due to the fact that the responses of those persons who perceived low inflation are not included directly in the calculation of this balance. Thus, the balance does not show the percentage of those who perceived a price increase compared with those who perceive a decrease but rather, roughly speaking, the percentage of those who perceive a relatively sharp inflation compared with the percentage of those who perceive stable or falling prices. The percentage of persons who perceive a weak price increase limits the fluctuations of the balances.
29. Econometric estimations likewise provide no indication of the rate of inflation being more strongly overestimated at present than it was in earlier comparable periods.
30. Econometric estimations confirm Brachinger merely to the extent that it was possible to demonstrate persistencies in inflation perception that were reinforced (for a time) by the introduction of the euro. Even so, they are obviously less pronounced than as modelled by Brachinger.
31. See Deutsche Bundesbank: The euro and prices two years on, Monthly Report January 2004, pp. 15-28.
32. See, for example, J. Rotemberg : Fair pricing, NBER Working Paper 10915, 2004.
33. See E. Traut-Mattausch: Die T€uro-Illusion. Urteilsverzerrungen bei Preisvergleichen, Hamburg 2004.
34. See also E. Traut-Mattausch, S. Schulz-Hardt, T. Greitemeyer, D. Frey: Expectancy confirmation in spite of disconfirming evidence: The case of price increases due to the introduction of the Euro, in: European Journal of Social Psychology, Vol. 34, No. 6, 2004, pp. 739-760.