How (i)rrational are we? A case of Croatian inflation
This paper examines the validity of the rational expectations hypothesis (REH) in the case of Croatian consumers and their inflation estimates. The added value of this paper in comparison to previous similar studies lies in the state space methodology, allowing the authors to test for potential time...
| Main Authors: | , , |
|---|---|
| Format: | Article |
| Language: | English |
| Published: |
Croatian Operational Research Society
2015-03-01
|
| Series: | Croatian Operational Research Review |
| Subjects: | |
| Online Access: | http://hrcak.srce.hr/index.php?show=clanak&id_clanak_jezik=204327 |
| _version_ | 1818583747303309312 |
|---|---|
| author | Nataša Erjavec Ivana Lolić Petar Sorić |
| author_facet | Nataša Erjavec Ivana Lolić Petar Sorić |
| author_sort | Nataša Erjavec |
| collection | DOAJ |
| description | This paper examines the validity of the rational expectations hypothesis (REH) in the case of Croatian consumers and their inflation estimates. The added value of this paper in comparison to previous similar studies lies in the state space methodology, allowing the authors to test for potential time variability of the estimated relationship between actual and expected inflation. The obtained results can be summarized as follows: i) consumers heavily over-estimated actual inflation throughout the entire period 2005-2014, leading to the rejection of the REH; ii) consumer bias against inflation intensifies in times of abrupt price hikes (2007 and 2008), and diminishes in times of lower inflation volatility (2014). This empirical rejection of the REH is in line with previous research on the topic, providing additional evidence that the theoretical paradigm of homo economicus is heavily flawed. |
| first_indexed | 2024-12-16T08:10:12Z |
| format | Article |
| id | doaj.art-ab44d8e9c04647d88d3d8e151c2d7fbb |
| institution | Directory Open Access Journal |
| issn | 1848-0225 1848-9931 |
| language | English |
| last_indexed | 2024-12-16T08:10:12Z |
| publishDate | 2015-03-01 |
| publisher | Croatian Operational Research Society |
| record_format | Article |
| series | Croatian Operational Research Review |
| spelling | doaj.art-ab44d8e9c04647d88d3d8e151c2d7fbb2022-12-21T22:38:22ZengCroatian Operational Research SocietyCroatian Operational Research Review1848-02251848-99312015-03-016124125310.17535/crorr.2015.0019How (i)rrational are we? A case of Croatian inflationNataša Erjavec0Ivana Lolić1Petar Sorić2Faculty of Economics and Business, University of Zagreb, Zagreb, CroatiaFaculty of Economics and Business, University of Zagreb, Zagreb, CroatiaFaculty of Economics and Business, University of Zagreb, Zagreb, CroatiaThis paper examines the validity of the rational expectations hypothesis (REH) in the case of Croatian consumers and their inflation estimates. The added value of this paper in comparison to previous similar studies lies in the state space methodology, allowing the authors to test for potential time variability of the estimated relationship between actual and expected inflation. The obtained results can be summarized as follows: i) consumers heavily over-estimated actual inflation throughout the entire period 2005-2014, leading to the rejection of the REH; ii) consumer bias against inflation intensifies in times of abrupt price hikes (2007 and 2008), and diminishes in times of lower inflation volatility (2014). This empirical rejection of the REH is in line with previous research on the topic, providing additional evidence that the theoretical paradigm of homo economicus is heavily flawed.http://hrcak.srce.hr/index.php?show=clanak&id_clanak_jezik=204327inflation expectationsrational expectations hypothesisstate space modelconsumer surveystime-varying parameters |
| spellingShingle | Nataša Erjavec Ivana Lolić Petar Sorić How (i)rrational are we? A case of Croatian inflation Croatian Operational Research Review inflation expectations rational expectations hypothesis state space model consumer surveys time-varying parameters |
| title | How (i)rrational are we? A case of Croatian inflation |
| title_full | How (i)rrational are we? A case of Croatian inflation |
| title_fullStr | How (i)rrational are we? A case of Croatian inflation |
| title_full_unstemmed | How (i)rrational are we? A case of Croatian inflation |
| title_short | How (i)rrational are we? A case of Croatian inflation |
| title_sort | how i rrational are we a case of croatian inflation |
| topic | inflation expectations rational expectations hypothesis state space model consumer surveys time-varying parameters |
| url | http://hrcak.srce.hr/index.php?show=clanak&id_clanak_jezik=204327 |
| work_keys_str_mv | AT natasaerjavec howirrationalareweacaseofcroatianinflation AT ivanalolic howirrationalareweacaseofcroatianinflation AT petarsoric howirrationalareweacaseofcroatianinflation |