INDIVIDUALISTIC ATTRIBUTES OF INFLATIONARY EXPECTATIONS EVIDENCE FROM PAKISTAN

• Published in: Pakistan economic and social review Vol. 56; no. 2; pp. 275 - 312
• Main Authors: Qayyum, Waqqas, Malik, Wasim Shahid
• Format: Journal Article
• Language: English
• Published: Lahore Department of Economics, University of the Punjab 31.12.2018; Knowledge Bylanes; University of the Punjab, Department of Economics
• Subjects: Attributes; Banks (Finance); Central banks; Consumer research; Consumption; Economic policy; Economists; Efficacy; Inflation; Literacy; Macroeconomics; Measurement; Monetary policy; Myopia; Objectives; Older people; Optimism; Policy making; Polls & surveys; Price levels; Researchers; Self employment; Surveys; Variables; Pakistan
• ISSN: 1011-002X; 2224-4174

Macroeconomics today has evolved to a very dynamic nature in terms of the way it handles and approaches the macroeconomic modeling. Among the various pronounced features, the one that has acquired the central theme is the micro foundations. Individual entities, attributes, behaviors and tendencies which were more of a concern to microeconomic models have become a more acknowledged part of the contemporary macroeconomic models. Analyzing inflationary expectations and incorporating them in the models designed to evaluate the efficacy of economic policy is the biggest evidence of this paradigm shift. Owing to the critical role, inflationary expectations can play in transmission mechanism of policy, researchers are eager to explore them from measurement perspective and in terms of factors determining them. The study at hand is an attempt to explore inflationary expectations from individualistic perspective. The study is conducted based on the survey responses of salaried and self-employed individuals from twin cities of Pakistan; Rawalpindi and Islamabad. An ordinal Logit model is fitted based on the high, medium, low and stable forecast about the increase in general price level in upcoming year and is analyzed for various qualitative and quantitative determinants of inflationary expectations. The results suggest that the individualistic attributes including age, income level, degree of optimism, degree of myopia, degree of relative comparisons, economic literacy, and occupational differential significantly explain the choice of inflationary forecast on the part of respondents. High level inflationary expectations are tracked among the respondents who are more myopic, relatively makes more comparisons in evaluating their income, consumption choices and wage negotiations, hold more economic literacy, are occupationally salaried and belong to old age group, while low level inflationary expectations are observed among the individuals who belong to higher income group and those who are more optimistic. The findings of this study provide a strong case to advise policy makers to incorporate and anticipate these individualistic attributes while designing policies destined towards controlling inflation to make policies more effective.