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Yale for valuable comments. Weber gratefully acknowledges financial support from the University of Chicago, the Neubauer Family Foundation, and the Fama-Miller Center. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.
Cognitive abilities help explain the large cross-sectional variation in inflation expectations at the household level. But which type of cognitive abilities are important? We find that not only quantitative abilities but also logical and verbal abilities are important to explain the accuracy and plausibility of households' inflation expectations. We discuss the channels through which different forms of cognition might shape households' abilities to forecast future macroeconomic variables. We also draw implications for the effectiveness of policies that aim to manage households' expectations.
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