Inflation Expectations, Learning, and Supermarket Prices: Evidence from Survey Experiments†

Inflation Expectations, Learning, and Supermarket Prices: Evidence from Survey Experiments† AbstractInformation frictions play a central role in the formation of household inflation expectations, but there is no consensus about their origins. We address this question with novel evidence from survey experiments. We document two main findings. First, individuals in low inflation contexts have significantly weaker priors about the inflation rate. This finding suggests that rational inattention may be an important source of information frictions. Second, cognitive limitations also appear to be a source of information frictions: even when information about inflation statistics is available, individuals still place a significant weight on inaccurate sources of information, such as their memories of the price changes of the supermarket products they purchase. We discuss the implications of these findings for macroeconomic models and policymaking. (JEL D83, D84, E31, L11, L81, O11) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Macroeconomics American Economic Association

Inflation Expectations, Learning, and Supermarket Prices: Evidence from Survey Experiments†

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Publisher
American Economic Association
Copyright
Copyright © 2017 © American Economic Association
ISSN
1945-7715
D.O.I.
10.1257/mac.20150147
Publisher site
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Abstract

AbstractInformation frictions play a central role in the formation of household inflation expectations, but there is no consensus about their origins. We address this question with novel evidence from survey experiments. We document two main findings. First, individuals in low inflation contexts have significantly weaker priors about the inflation rate. This finding suggests that rational inattention may be an important source of information frictions. Second, cognitive limitations also appear to be a source of information frictions: even when information about inflation statistics is available, individuals still place a significant weight on inaccurate sources of information, such as their memories of the price changes of the supermarket products they purchase. We discuss the implications of these findings for macroeconomic models and policymaking. (JEL D83, D84, E31, L11, L81, O11)

Journal

American Economic Journal: MacroeconomicsAmerican Economic Association

Published: Jul 1, 2017

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