Building on Prospect Theory, we apply the concept of loss aversion to the formation of inflation perceptions and test … empirically for non-linearities in the inflation-perceptions relation for a panel of 10 Euro area countries. Specifically, under … the assumption of loss aversion, inflation changes above a certain reference rate will be perceived more strongly …

between monetary policy and macroeconomic conditions affects inflation uncertainty in the long-term. We construct a proxy for … the unobservable inflation uncertainty based on the slowly evolving long-term variance component of inflation from a … Spline-GARCH model (Engle and Rangel, 2008). We show that long-run inflation uncertainty is high if an inflation …