Anglo-American University, in collaboration with the Faculty of Social Sciences at Charles University and the Czech National Bank (ČNB), will spearhead an initiative designed to accurately measure household inflation expectations and enhance economic stability.

A six-member team of economists and researchers from the partnering institutions will manage the project under the guidance of Jiří Schwarz Jr., Dean of the School of Business Administration at AAU. The initiative has secured a CZK 2 million grant from the Technology Agency of the Czech Republic (TAČR) within the SIGMA program and came in 4th out of 379 submitted projects.

The initiative centers around a sophisticated and detailed survey, the first of its kind in the Czech Republic. This survey will gather data from Czech households that can then be used to model inflation expectations. But unlike current surveys, which lack the same level of sophistication, this one will provide a more accurate picture by accounting for idiosyncratic and systematic deviations in the expectations held by each household.

“The detailed survey, which has never been conducted here before, will provide results for the benefit of both the Czech National Bank and the professional public,” said Schwartz Jr. “I am pleased that AAU is at the forefront of this scientific initiative and that a private university can conduct quality research.”

Inflation expectations held by households play a pivotal role in influencing inflation rates. Schwarz emphasized that closely monitoring these expectations is crucial and that the disparity between household expectations and the inflation targets set by the central bank indicates an erosion in public confidence in the bank’s ability to ensure price stability. This can potentially lead to increased inflation risks.

But measuring household expectations can be challenging due to variations in the consumer understanding of inflation. To address this, the survey will employ the novel concept of indirect consumer inflation expectations, combining direct and indirect questions to yield responses that are impartial, comparable, and, ultimately, accurate.

Additionally, respondents will be queried about the level of uncertainty surrounding their answers and any planned changes in consumer behavior. The collected data will serve as a valuable input in shaping the national bank’s decision-making process.   

The project marks a significant stride towards bolstering economic stability in the Czech Republic. And by gaining deeper, more accurate insights into the consumer mindset, it stands to provide a robust foundation for better informed monetary policy, with the potential to greatly benefit the consumer and the country as a whole.