Empirical Applications Based on Survey Data
Appendix D Calculation of the non-oil CPI
Since inﬂation expectations consist of oil price expectations, we use the weights of oil prices in the consumer basket (γ) reported by the respective central bank and shown in Table D.1. Since the weights do not change no- ticeably over time and in order to isolate the eﬀect of oil price expectations from time-varying compositions of the consumer basket we used constant weights. We split the overall inﬂation expectation Etπt+12 into the unobserv- able non-oil inﬂation expectations Etπ̂t+12 by means of the observable oil price expectation EtΔoilt+12: (D.1) Etπt+12 = (1− γ) · Etπ̂t+12 + γ · EtΔoilt+12 which can be rearranged to (D.2) Etπ̂t+12 = Etπt+12 − γ · EtΔoilt+12 1− γ where Etπ̂t+12 reﬂects the unobservable non-oil inﬂation expectation. Table D.1: Relative weight (γ) of oil in the consumer basket Country Canada UK U.S. Euro-Area Weights (in percent) 2.0 1.8 2.1 1.7 Source: Bank of Canada, Bank of England, Federal Reserve and European Central Bank.
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