Abstract: “An usual method for policy makers to control inflation is manipulating interest rates. This study checks the effectiveness of using interest rates as a method to control the inflation by studying the relation between interest rate and perceived inflation. 200 undergraduate students were invited in an experiment. Our findings show there is no main effects for bank interest rate and actual inflation rate on perceived inflation. However, a significant interaction effect was found between bank interest rate, personal income and actual inflation rate on perceived inflation.”

Keywords: Interest rate, Personal Income, Expected Inflation, Perceived Inflation, Monetary Policy