nr 093 - Dutch households’ perceptions of economic growth and inflation

DNB Working Papers
Date 16 March 2006

This paper analysis the results of a survey on qualitative and quantitative perceptions and expectations of past, current and future macroeconomic developments among a representative household panel (DNB Household Survey). Perceptions of economic growth and inflation show a large dispersion. For the median respondents, however, the quantitative perceptions were found to be quite accurate. There is some evidence that the concept of economic growth is a more abstract notion for the general public than inflation. The results on qualitative and quantitative perceptions of current inflation could be interpreted as the Dutch public having a high level of inflation aversion. Those who have declared themselves more knowledgeable are also more actively involved in dealing with financial issues. The empirical evidence seems to corroborate that individuals with higher self-assessed knowledge levels are better informed indeed and have more accurate quantitative perceptions of economic growth and inflation. The survey also provides further insights on the connection between perceptions of current and past economic developments on the one hand, and expectations of future developments on the other. At the individual level there is a strong and robust correlation between expected growth and inflation for the next year and the perceptions of the current situation (rule of thumb behavior). But short-term expectations are also influenced by the views individuals hold on longer-term developments. Moreover, the results confirm the observed persistence in annual acroeconomic growth and inflation figures. JEL Codes: D12, D84, E30 Key words: individual consumer perceptions and expectations, empirical knowledge of inflation and economic growth, rule of thumb behavior, DNB Household survey