monetary integration, perceived inflation, euro, GDP growth, consumption, eurozone

Background - hypothesis:

There is significant empirical evidence, that introduction of euro led in most of the countries to significant increase of perceived inflation. At the same time there was no rapid increase in prices monitored by official price indexes like HICP (harmonised index of consumer prices). There is a lot of literature and empirical studies trying to explain the motives for increase and persistence of perceived inflation. The new approach to this phenomenon is applied in proposed paper. Authors will test the hypothesis that the increase in perceived inflation has the same effect on consumption as the increase in inflation expectations. When the people expect the prices go up in the future, they adjust their consumer's (saving's) behaviour. Subsequently it may have significant impact on GDP growth.

Objectives:

The aim of the article is to analyse if there is any significant correlation between growth in perceived inflation and consumption behaviour. Subsequently the authors test the possible impact of these changes on long term economic growth (on changes in potential product level).

Data/Methods:

Sources of data: Eurostat database, IMF statistics, national statistical offices

Expected Results:

If the significant correlation between growth in perceived inflation and changes in consumer's (saving's) behaviour is identified, it can help explain the slow-down of economic growth (decline in potential product) in most of the countries after euro introduction.