With the danger of Europe sliding into deflation, the discussion of the formation of inflation expectations in Eastern Europe has intensified to a level not seen since the mid-1990s, when the concern was to bring inflation down from double-digit levels to levels corresponding to those in Western Europe. In the first paper in this issue, Tomasz Lyziak examines the way in which inflation expectations are formed in Poland. Not unexpectedly, he finds that firms and professional forecasters differ from the general public in the way that they form their inflation expectations. The public tends to use past levels of inflation in forecasting what will happen to prices in the future, while firms and forecasters tend to be more forward looking and to take heed of the policy guidance provided by the National Bank of Poland through its inflation targets. The paper is based on better survey data than used by previous studies of inflation expectations in Poland, and it yields a rich variety of findings regarding households' and firms' inflation expectations, including their biases and near rationality.
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