A0792
Title: Assessing consumers' inflation expectations in Euro area countries using entropy measures
Authors: Jaroslaw Janecki - Szkola Glowna Handlowa w Warszawie (Poland) [presenting]
Abstract: The aim of the article is to assess inflation uncertainty for various groups of consumers in euro-area countries in more detail. Inflation expectations are defined as a disagreement between the respondents who are asked about the assessment of inflation processes. For testing, the entropy measure is used as a reference point for assessing the amount of information in the message. The empirical measure of entropy, defined according to Shannon's proposal, is a proxy for assessing the uncertainty of inflation. The study used survey data from the European Commission's consumer sentiment survey. Empirical results lead to the conclusion that measures of statistical entropy allow for differentiation of responses to inflation uncertainty from the point of view of education, age, and sex of respondents. The obtained results indicate that higher inflation uncertainty prevails among consumers in the euro area among people with the lowest education and the youngest. In addition, in the VAR model, when examining disagreement between survey responses, entropy gives better results (smaller errors) than standard deviation.
