| Abstract [eng] |
58 pages, 10 charts, 16 pictures, 25 references. The purpose of this study is to analyze comprehensively the scientific literature sources related to inflation expectations, review the practices and methods of quantification of inflation expectations and quantify inflation expectations of Lithuanian households, assess them and identify the factors, determining consumer forecast inaccuracies. Objectives of the Paper: 1. To summarize theoretical approaches towards inflation expectations; to review the theories of economic expectations. 2. To analyze comprehensively the tendencies in inflation expectations, manifesting themselves throughout Lithuania. 3. To quantify the inflation expectations using data obtained through qualitative questionnaire surveys of Lithuanian households. 4. To conduct a survey planned to clarify the rationality of inflation expectations of Lithuanian households. 5. To conduct a survey meant for clarification of compliance of inflation expectations with the actual inflation and identify the factors, determining household forecast inaccuracies. In the Master’s thesis, the following methods are used: scientific literature analysis, investigation of statistical data from the Lithuanian Statistics Department that is intended for the exploration of the Lithuanian-wide tendencies of inflation expectations and for interpretation of this data. The qualitative data of questionnaire surveys are quantified using the Carlson-Parkin method, modified by T. Lyziak (2003). Household rationality tests are conducted with reference to rationality conditions, set by Maddala and Lahiri (2009). On the basis of statistical data 2001 – 2020, regression models are created intended for analysis of factors, influencing household forecast inaccuracies. The quantitative data analysis is conducted using “R-studio” software package. In the theoretical part, the role of inflation expectations in economic processes is analyzed, and key concepts of economic expectations are reviewed (so called “naive” expectations, then adaptive expectations and rational expectations). In addition, assessment of inflation expectations in economic models is discussed alongside with the surveys intended for inflation expectations. The methods of quantification of inflation expectations are discussed as well here. In the empirical part, the quantification of data obtained through questionnaire surveys of Lithuanian household expectations is conducted. Using the data obtained, the forecasting errors in comparison to actual inflation are found, the rationality of expectations is assessed. Regression models are created further on, which assist in determining the factors influencing the forecasting inaccuracies and direction of impact of these factors. The results obtained have shown that household forecasts are not rational and do not meet the substantial conditions of rationality tests. When predicting the future inflation, the employment rate, wage growth rate, output gap and unemployment rate influence consumer errors markedly. Meanwhile, the periods, during which the monthly minimum wage has been growing, have not have any impact on forecast inaccuracies. This research has revealed that the overall economic situation shapes inflation perception to the extent maximum possible. In economics, when positive shifts are prevailing, inflation forecasts become more objective, most likely so because they are related to recent inflation outcomes. Meanwhile, when going through tough times, negative moods also move to perception of the price levels, when consumers predict a slightly higher rate of inflation than that, which actually happens to be. |
