What Financial Markets in the CEE Region Tell Us about Inflation Expectations

František Táborský
Statistika, 106(1): 5–20
https://doi.org/10.54694/stat.2025.17

Abstract
Inflation expectations have become a significant concern for monetary policy settings in the CEE region due to the sharp rise in inflation. The absence of market-based inflation expectations complicates the assessment of anchoring inflation expectations in the economy, especially during periods of extreme shock. The experience of the EM space with more developed financial markets allows for the estimation of unobserved long-term inflation expectations in the CEE region replicating market-based expectations. A panel regression model was used to estimate long-term marked-based inflation expectations in Czechia, Poland, and Hungary. The results show that market-based inflation expectations in the CEE region have significantly lower volatility compared to survey-based expectations, which are often used as proxy variables by central banks for monetary policy decision-making. The results are indicating that survey-based inflation expectations cannot be used as a proxy for long-term inflation expectations due to significantly different developments and characteristics that could lead to erroneous monetary policy decisions.

Keywords
CEE region, inflation expectations, panel regression