Asia-Pacific Journal of Business (아태비즈니스연구)

KNU The Institute of Management & Economy Research (강원대학교 경영경제연구소)
권호 표지
DOI QR코드

DOI QR Code

Determinants of Inflation Expectations of South Korean Consumers

한국 소비자의 기대 인플레이션 결정요인

  • Young-Bin Ahn (Department of International Trade, Pusan National University)
  • Received : 2023.07.19
  • Accepted : 2023.10.31
  • Published : 2023.12.31
Download PDF
⟨ Previous Next ⟩

Abstract

Purpose - The purpose of this study is to investigate the determinants of consumers' inflation expectations using consumers' inflation perceptions and the sub-components of consumer price index (CPI) basket in South Korea based on a consumer survey conducted by the Bank of Korea (BOK). Design/methodology/approach - Using Carroll's (2003) epidemiological model, we analyzed data from January 2013 to January 2023, resulting in a data set of 121 observations for both inflation perceptions and inflation expectations. This study focuses only on aggregate inflation expectations and perceptions because of data availability from the BOK. Findings - Professionals' forecasts play a major role in forming consumers' inflation expectations, whereas the actual headline CPI and consumers' inflation perceptions do not. These results remain robust when including the sub-components of the CPI basket in the analysis. Research implications or Originality - It would be the most efficient way to suppress professionals' expected inflation in fighting against a substantial spike in consumers' inflation expectations. To guide consumers' inflation expectations based on BOK's inflation targeting, the bank needs to consider professionals' forecasts in devising monetary policies.

Keywords

Acknowledgement

이 논문은 부산대학교 신진교수 지원사업에 의하여 연구되었음.

References

  1. 김주일 (2016), "한국에서 기대인플레이션이 소비자 물가에 미치는 영향에 관한 연구", 동중앙아시아연구, 27(3), 55-69.
  2. 이정익 (2012), "우리나라 기대 인플레이션의 특징", BOK 경제리뷰, Discussion Paper Series 2012-1호, 한국은행, 1-29.
  3. 이한규, 최진호 (2015), "우리나라 일반인 인플레이션 기대 형성 행태 분석", 한국개발연구, 37(특별호), 33-63.
  4. 조병수 (2017), "일반인과 전문가의 인플레이션 기대 형성 특징에 대한 비교 분석", 시장경제연구, 46(3), 59-84.
  5. 최병재 (2012), "일반인 기대 인플레이션의 주요 특징과 시사점", 조사통계월보, 2012-8호, 한국은행, 19-44.
  6. Abildgren, K. and A. Kuchler (2021), "Revisiting the inflation perception conundrum", Journal of Macroeconomics, 67, 103264.
  7. Ahn, Y. B. and Y. Tsuchiya (2019), "Asymmetric Loss and the Rationality of Inflation Forecasts: Evidence from South Korea", Pacific Economic Review, 24, 588-605. https://doi.org/10.1111/1468-0106.12214
  8. Arioli, R., C. Bates, H. Dieden, I. Duca, R. Friz, C. Gayer et al. (2017), EU consumers' quantitative inflation perceptions and expectations: An evaluation (ECB Occasional Paper No. 186). Frankfurt: European Central Bank.
  9. Benford, J. and R. Driver (2008), Public Attitudes to Inflation and Interest Rates (Bank of England Quarterly Bulletin 2008 Q2: 148-156). London: Bank of England.
  10. Biau, O., H. Dieden, G. Ferrucci, R. Friz and S. Linden (2010), Consumers' quantitative inflation perceptions and expectations in the euro area: an evaluation. mimeo.
  11. Binder, C. (2017), "Consumer forecast revisions: Is information really so sticky?", Economics Letters, 161, 112-115. https://doi.org/10.1016/j.econlet.2017.09.029
  12. Binder, C. (2018), "Expectations and the Price at the Pump", Journal of Macroeconomics, 58, 1-18. https://doi.org/10.1016/j.jmacro.2018.08.006
  13. Blanchflower, D. G. and C. MacCoille (2009), The Formation of Inflation Expectations: An Empirical Analysis for the UK (NBER Working Paper No. 15388). Cambridge: National Bureau of Economic Research.
  14. Capistran, C. and A. Timmermann (2009), "Disagreement and Biases in Inflation Expectations", Journal of Money, Credit and Banking, 41, 365-396. https://doi.org/10.1111/j.1538-4616.2009.00209.x
  15. Carroll, C. D. (2003), "Macroeconomic Expectations of Households and Professional Forecasters", Quarterly Journal of Economics, 118, 269-298. https://doi.org/10.1162/00335530360535207
  16. Cavallo, A., G. Cruces and R. Perez-Truglia (2016), "Learning from potentially biased statistics", Brookings Papers on Economic Activity, 2016, 59-108. https://doi.org/10.1353/eca.2016.0013
  17. Cavallo, A., G. Cruces and R. Perez-Truglia (2017), "Expectations, Learning, and Supermarket Prices: Evidence from Survey Experiments", American Economic Journal: Macroeconomics, 9, 1-35. https://doi.org/10.1257/mac.20150147
  18. Coibion, O., Y. Gorodnichenko and M. Weber (2022), "Monetary policy communications and their effects on household inflation expectations", Journal of Political Economy, 130(6), 1537-1584. https://doi.org/10.1086/718982
  19. Das, A., K. Lahiri and Y. Zhao (2017, April 26-27), "Asymmetries in Indian Inflation Expectations", Workshop on Forecasting Issues in Developing Economies in International Monetary Fund, Washington D.C., USA.
  20. Das, A., K. Lahiri and Y. Zhao (2019), "Inflation expectations in India: learning from household tendency surveys", International Journal of Forecasting, 35, 980-993. https://doi.org/10.1016/j.ijforecast.2019.03.007
  21. Del Giovane, P. Fabiani and R. Sabbatini (2008), "What's behind inflation perceptions? A Survey-Based Analysis of Italian Consumers". In D. Giovane, P. Fabiani and R. Sabbatini (Eds), The Euro, Inflation and Consumer's Perceptions: Lessons from Italy, Berlin, Heidelberg: Springer Berlin Heidelberg, 157-197.
  22. Dopke, J., J. Dovern, U. Fritsche and J. Slacalek (2008), "The dynamics of European inflation expectations", The B.E. Journal of Macroeconomics, 8, 1-23 https://doi.org/10.2202/1935-1690.1540
  23. Drager, L. (2015), "Inflation Perceptions and Expectations in Sweden: Are Media Reports the Missing Link?", Oxford Bulletin of Economics and Statistics, 77, 681-700. https://doi.org/10.1111/obes.12078
  24. Drager, L., J.-O. Menz and U. Fritsche (2014), "Perceived inflation under loss aversion", Applied Economics, 46, 282-293. https://doi.org/10.1080/00036846.2013.844328
  25. Drager, L. and G. Nghiem (2021), "Are Consumers' Spending Decisions in Line With an Euler Equation?", Review of Economics and Statistics, 103, 1-17. https://doi.org/10.1162/rest_a_00857
  26. Easaw, J., R. Golinelli and M. Malgarini (2013), "What determines households inflation expectations? Theory and evidence from a household survey", European Economic Review, 61, 1-13. https://doi.org/10.1016/j.euroecorev.2013.02.009
  27. Elliott, G., I. Komunjer and A. Timmermann (2008), "Biases in Macroeconomic Forecasts: Irrationality or Asymmetric Loss?", Journal of the European Economic Association, 6, 122-157. https://doi.org/10.1162/JEEA.2008.6.1.122
  28. Evans, G. W. and S. Honkapohja (2001), Learning and Expectations in Macroeconomics, Princeton: Princeton University Press.
  29. Georganas, S., P. J. Healy and N. Li (2014), "Frequency Bias in Consumers' Perceptions of Inflation: An Experimental Study", European Economic Review, 67, 144-158. https://doi.org/10.1016/j.euroecorev.2014.01.014
  30. Jang, B. and Y. S. Kim (2017), "Driving Forces of Inflation Expectations", The Korean Economic Review, 33, 207-237. https://doi.org/10.22841/KERDOI.2017.33.2.001
  31. Lamla, M. J. and S. M. Lein (2014), "The Role of Media for Consumers' Inflation Expectation Formation", Journal of Economic Behavior & Organization, 106, 62-77. https://doi.org/10.1016/j.jebo.2014.05.004
  32. Lamla, M. J. and D. V. Vinogradov (2019), "Central bank announcements: Big news for little people?", Journal of Monetary Economics, 108, 21-38. https://doi.org/10.1016/j.jmoneco.2019.08.014
  33. Laster, D., P. Bennett and I. S. Geoum (1999), "Rational Bias in Macroeconomic Forecasts", Quarterly Journal of Economics, 114, 293-318. https://doi.org/10.1162/003355399555918
  34. Lein, S. M. and T. Maag (2011), "The formation of inflation perceptions: some empirical facts for European countries", Scottish Journal of Political Economy, 58, 155-188. https://doi.org/10.1111/j.1467-9485.2011.00541.x
  35. Malmendier, U. and S. Nagel (2016), "Learning from inflation experiences", The Quarterly Journal of Economics, 131(1), 53-87. https://doi.org/10.1093/qje/qjv037
  36. Nam, M. and M. Go (2018), "Nexus between Inflation, Inflation Perceptions and Expectations", KDI Journal of Economic Policy, 40(3), 45-68.
  37. Pfajfar, D. and E. Santoro (2013), "News on Inflation and the Epidemiology of Inflation Expectations", Journal of Money, Credit and Banking, 45(6), 1045-1067. https://doi.org/10.1111/jmcb.12043
  38. Ranyard, R., F. Del Missier, N. Bonini, D. Duxbury and B. Summers (2008), "Perceptions and Expectations of Price Changes and Inflation: A Review and Conceptual Framework", Journal of Economic Psychology, 29, 378-400. https://doi.org/10.1016/j.joep.2008.07.002
  39. Rowe, J. (2016), How are Households' Inflation Expectations Formes? (Bank of England Quarterly Bulletin 2016 Q2: 82-86). London: Bank of England.
  40. Souleles, N. S. (2004), "Expectations, heterogeneous forecast errors, and consumption: Micro evidence from the Michigan consumer sentiment surveys", Journal of Money, Credit, and Banking, 36, 39-72. https://doi.org/10.1353/mcb.2004.0007
  41. Thomas, L. B. and A. P. Grant (2008), "The Accuracy and Rationality of US and Australian Household Inflation Forecasts: A Comparative Study of the Michigan and Melbourne Institute Surveys", The Economic Record, 84, 237-52. https://doi.org/10.1111/j.1475-4932.2008.00465.x