Abstract:

This paper attempts to provide an overview of the different techniques used to convert qualitative assessments from surveys into quantitative data, i.e. the balance statistic, the Carlson-Parkin method and the Pesaran’s regression approach. These techniques are then used to determine and compare inflation expectations in Romania, Czech Republic, Poland and Hungary by using data from the European Commission Consumer Survey. The results show an underestimation of actual inflation by the Polish and Czech consumers, while Romanian and Hungarian consumers seem to be more pessimistic, overestimating the actual inflation in a systematic manner. Expectations regarding future inflation play an important role in the pricing policy of enterprises and in wage negotiations. Also for a monetary policy that is geared towards maintaining a low and stable level of inflation an assessment of how the public forms inflation expectations is of crucial importance as it provides important information about the effectiveness of monetary policy and the credibility of the central bank. Inflation expectations cannot be observed directly, they have to be derived either from the prices of inflation-indexed financial market instruments or from survey data. In case of the emerging economies the second option is usually preferred due to the still low development level of financial markets in these countries.