Tomasz Łyziak’s research while affiliated with Narodowy Bank Polski and other places

This study confronts domestic and global views on inflation through the use of the Hybrid New Keynesian Phillips Curve (HNKPC) models estimated for headline and core inflation in Poland. We analyse the roles of the global vs. domestic output gaps in affecting price changes. We ensure that our conclusions are robust by taking into consideration various proxies for inflation expectations, imported inflation, the domestic output gap and the global output gap. Our results suggest that the global demand conditions are statistically insignificant in the majority of the estimated global versions of HNKPC, independently of the measure of them that is considered. In terms of empirical fit, and especially of the out-of-sample forecasting accuracy, the specifications of the Phillips curve with the domestic and global output gaps among the explanatory variables are not superior to traditional Phillips curves. Interestingly, the relative importance of the global output gap is much smaller in models that are estimated in terms of core inflation, excluding foodstuffs and energy, than in CPI inflation models. This suggests that global demand conditions affect the inflation in Poland indirectly, mainly through the prices of food and energy raw materials. The main conclusion from our study is that external factors that are already considered in the traditional hybrid versions of the new Keynesian Phillips curve are sufficient to account for global influences on prices in the domestic economy. The concept of the global output gap improves neither the explanatory nor the predictive power of HNKPC models.

This article evaluates fiscal discipline in twenty-two member countries in the European Union. We adopt a two-dimensional approach in which we evaluate the reaction of the primary balance to public debt and the response of financial markets to fiscal variables. Our results suggest that the fiscal policy in EU is sustainable. Financial markets seem to pay attention to fiscal variables. Since the beginning of the financial crisis, both markets and governments have responded more strongly to public debt. Interestingly, the reaction of the markets to GDP per capita seems to be stronger in the high-debt economies.

Studying formation of inflation expectations in the euro area we propose a novel method, integrating rational, adaptive and sticky-information models. We find that in recent turbulent times, formation of inflation expectations by professional forecasters has displayed less inertia with the increased role of the perceived inflation target. Despite its slightly negative trend observed recently, the perceived target has remained broadly consistent with the ECB's announced inflation target. The direct impact of ECB inflation projections on expectations is minor, but growing marginally. However, inflation expectations remain consistent with the views and preferences of the ECB, which suggests effective management of expectations. Our results have implications for the conduct of ECB monetary policy, emphasising the need to monitor risks for price stability and expectations' de-anchoring in the context of complex models of their formation and for macroeconomic modelling, stressing the need to analyse monetary policy communication and changes in expectation formation over time.

This article analyses the anchoring of inflation expectations of professional forecasters and consumers in the euro area. We study anchoring, defined as the central bank's ability to manage expectations, by paying special attention to the impact of the ECB inflation target and ECB inflation projections on inflation expectations. Our analysis indicates that in the post-crisis period longer-term inflation expectations have become somewhat more sensitive to shorter-term ones and to actual HICP inflation. We also find that the ECB inflation projections have recently become more important for short- and medium-term expectations of professional forecasters and at the same time the role of the ECB inflation target for those expectations has diminished. Overall, our analysis suggests that in recent years inflation expectations in the euro area have shown some signs of de-anchoring.

This paper estimates different versions of the stylized New Keynesian model of the Polish economy, in which alternative measures of inflation expectations are used, that is, model-consistent (rational) expectations and survey-based expectations of consumers, enterprises and financial sector analysts. To compare dynamic properties of the models, we analyse propagation of the interest rate impulse, exchange rate impulse and a permanent change of inflation target. Differences in impulse responses pose the question which model should be treated as the most adequate. Analysis of in-sample inflation forecasting errors suggests that the model with rational expectations displays the lowest forecasting accuracy, while the model using expectations of enterprises is the best-performing model. In more general terms, our analysis suggests the best way of exploiting survey data on inflation expectations is not by using them as separate forward-looking information, alternative to macroeconomic models, but by combining both types of information.

Inflation perceived by consumers may differ from official statistics, particularly due to different baskets of goods and services that lay people and statisticians consider and due to consumer loss aversion to price increases. Such effects, as suggested by the prospect theory, are confirmed in many empirical studies showing that consumers' perceptions are substantially influenced by prices of frequent purchases and that price increases are perceived more strongly than price reductions. Following those observations, alternative consumer price indices were proposed, such as the out-of-pocket price index (ECB 2003) or the index of perceived inflation (Brachinger 2006, 2008). They proved particularly useful in interpreting a jump of inflation perception in some of the Economic and Monetary Union (EMU) economies after the euro introduction. The role of price changes of frequently bought goods and services in determining consumer opinions on price changes also seems significant in Poland, as revealed especially after its accession to the European Union (EU) in 2004. To assess whether their impact on subjectively perceived price changes is of a systematic nature, in this paper we develop different types of indices of price changes that are likely to influence consumer opinions on observed price developments. Then we evaluate them in terms of their impact on consumer inflation perception, as proxied with survey data, and define on this basis the best-performing index, called the consumer perceived price index (CPPI). The results suggest that Polish consumers observe a relatively wide range of goods and services and that both factors suggested by the prospect theory seem to influence their opinions on the evolution of prices in the past.

In this paper we analyze whether consumers in European economies are able to anticipate future inflation. For this purpose we check expectational errors and estimate the degrees of forward-lookingness and macroeconomic efficiency of consumer inflation expectations. We also test the impact of the recent financial crisis on the formation of these expectations. Our results suggest that capacities of consumers to anticipate future inflation are rather constrained, although their opinions contain some forward-looking elements. Consumers seem to anticipate future inflation to the highest extent in France, Cyprus, the European Monetary Union as a whole, and the Netherlands. There is also a relatively high degree of anticipation in Austria, Belgium, Estonia, Hungary, Italy, Latvia, Poland, and Slovakia. Consumer inflation expectations in advanced economies display better forecasting properties and higher degrees of forward-lookingness and efficiency than expectations in transition economies. Finally, our results suggest that the global financial crisis has influenced the formation of inflation expectations in both groups of economies.