The experience of the last decades revealed the weakening of the relationship between inflation and a domestic output gap in many small open economies. However we may expect that there is still a substantial share of inflation basket which is sensitive to domestic economic activity, in...

Inflation perceived by consumers may differ from official statistics due to different baskets of goods and services both variables capture and by consumer loss aversion to price increases. Those effects, suggested by the Prospect Theory, are confirmed in many empirical studies, showing that...