The observation inflation effect consists in the fact that observing an action being performed can create false memories that this action has actually been performed by the observer. The present study examined the relationship between this effect and interrogative suggestibility. A procedure based on the Gudjonsson Suggestibility Scale was used to assess two kinds of suggestibility: the tendency to yield to suggestive questions (Yield) and the tendency to change answers after feedback (Shift). The participants first watched a film depicting a woman performing simple activities and performed various activities themselves during the film. In order to determine whether the observation inflation effect occurred, the participants performed a source-monitoring test. The observation inflation effect was replicated. Observation inflation correlated positively with Yield but not with Shift. This pattern of results can be explained by the fact these two indicators are different aspects of interrogative suggestibility. Shift is more related to social influence, while Yield is more cognitive in its nature.

Bayesian VAR (BVAR) models offer a practical solution to the parameter proliferation concerns as they allow to introduce a priori information on seasonality and persistence of inflation in a multivariate framework. We investigate alternative prior specifications in the case of time series with a clear seasonal pattern. In the empirical part we forecast the monthly headline inflation in the Polish economy over the period 2011‒2014 employing two popular BVAR frameworks: a steady-state reduced-form BVAR and just-identified structural BVAR model. To evaluate the forecast performance we use the pseudo real-time vintages of timely information from consumer and financial markets. We compare different models in terms of both point and density forecasts. Using formal testing procedure for density-based scores we provide the empirical evidence of superiority of the steady-state BVAR specifications with tight seasonal priors.

The Walters critique of EMU presumed that pro-cyclical country-specific real interest rates would incorporate significant macroeconomic instability in an environment of asymmetric shocks. The literature on optimum currency areas suggests a number of criteria to minimize this risk, such as market flexibility, high degrees of openness, financial integration or similarity in inflation rates. In this paper, we argue that an essential part of macroeconomic volatility in a monetary union’s member country also depends on the mechanism of forming expectations. This is mainly due to (i) the construction of ex ante countryspecific real interest rate, implying a strong or weak negative correlation with current inflation rate and (ii) anticipated (and hence smoothed) loss in competitiveness and boom-bust cycle. In a 2-region 2-sector New Keynesian DSGE model, we apply 5 different specifications of ex ante real interest rates, based on commonly considered types of expectations: rational, adaptive, static, extrapolative and regressive, as well as their hybrids. Our simulations show that rational expectations dominate the other specifications in terms of minimizing the volatility of the most macroeconomic variables. This conclusion is generally insensitive to which group of agents (producers or consumers) and which region (home or foreign) forms the expectations. It also turns out that for some types of expectations the Walters critique indeed applies, i.e. the system does not fulfil the Blanchard-Kahn conditions or the system’s companion matrix has explosive eigenvalues.

We investigate the problem of setting revenue sharing rules in a team production environment with a principal and two agents. We assume that the project output is binary and that the principal can observe the level of agents’ actual eort, but does not know the production function. Identifying conditions that ensure the eciency of the revenue sharing rule, we show that the rule of equal percentage markups can lead to ination of project costs. This result provides an explanation for project cost overruns other than untruthful cost reporting.

We estimated a non-Stationary dynamic factor model and used it to generate artificial episodes of disinflation (permanent changes in the mean inflationrate). These datasets were used to test the forecasting abilities of alternative underlying inflation indicators (i.e. measures that capture sustained movements in inflation extracted from information in a disaggregated set of price data).We found that the out of sample forecast errors of the benchmark underlying inflation measures (based on unobserved trend extraction) are more severely affected by disinflation than the alternative simpler methods (based on exclusionor re-weighting approaches). We also show that a non-stationary dynamic factor model may be employed for the extraction of the unobserved trend to be usedas an underlying inflation measure.

In this paper, the stock price-inflation nexus is investigated using the tools of wavelet power spectrum, cross-wavelet power spectrum and cross-wavelet coherency to unravel time and frequency dependent relationships between stock prices and inflation. Our results suggest that for a frequency band between sixteen and thirty two months, there is some evidence of the fisher effect. For rest of the frequencies and time periods however there is no evidence of the fisher effect and it seems stock prices have not played any role as an inflation hedge.