Consumer Attitudes and the Epidemiology of Inflation Expectations

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AcknowledgementsWe would like to thank seminar participants at Newcastle University, Lund University, the Bank of Canada and the 2013 CEF meetings in Vancouver.iii AbstractThis paper studies the formation of consumers' inflation expectations using micro-level data from the Michigan Survey. It shows that beyond the well-established socioeconomic determinants of inflation expectations such as gender, income or education, other characteristics such as the households' financial situation and their purchasing attitudes also matter. Respondents with current or expected financial difficulties, pessimistic attitudes about major purchases, or expectations that income will go down in the future have considerably higher forecast errors, are further away from professional forecasts, and have a stronger upward bias in their expectations than other households. However, their bias shrinks by more than that of the average household in response to increasing media reporting about inflation. JEL classification: C53, D84, E31 Bank classification: Inflation and prices RésuméLes auteurs étudient la formation des attentes des consommateurs en matière d'inflation à partir de microdonnées tirées de l'enquête menée par l'Université du Michigan auprès des consommateurs. Ils montrent qu'au-delà des déterminants socio-économiques des attentes d'inflation bien établis comme le sexe, le revenu ou le niveau de scolarité, d'autres caractéristiques telles que la situation financière des ménages et leurs attitudes d'achat sont également importantes. Les répondants qui éprouvent ou anticipent des difficultés financières, qui sont pessimistes à l'égard des gros achats ou qui entrevoient une diminution de leur revenu futur commettent des erreurs de prévision beaucoup plus grandes que les autres ménages; en outre, leurs attentes s'éloignent davantage des prévisions des professionnels et elles comportent un biais à la hausse plus prononcé. Cependant, ce biais se réduit de manière plus marquée que celui du ménage moyen en réponse à une couverture médiatique accrue concernant l'inflation.

Do Inflation Expectations Propagate the Inflationary Impact of Real Oil Price Shocks?: Evidence from the Michigan Survey

“…The empirical results are consistent with a wide variety of evidence suggesting U.S. inflation expectations are sensitive to, or at least comove with, oil price shocks (see, inter alia , Harris et al. , Beechey, Johannsen, and Levin , Trehan , Arora, Gomis‐Porqueras, and Shi , Ehrmann, Pfajfar, and Santoro , Coibion and Gorodnichenko ). Even so, as established in the Introduction, an observation of inflation expectations that are sensitive to real oil price shocks does not necessarily imply that they must play a role in propagating real oil price shocks.…”

Monetary policy shocks from the consumer perspective

“…A number of studies have found gender, education, income and age to affect the expectations (e.g. Dräger et al, 2016;Bachmann, Berg, and Sims, 2015) but lifetime experiences (Malmendier and Nagel, 2016) and household financial health and attitudes on household spending (Ehrmann, Pfajfar, and Santoro, 2014) may also be important.…”

Global inflation dynamics in the post-crisis period: What explains the puzzles?

“…And third, one of the potential reasons for the higher volatility of household inflation expectations could be related to their strong dependence on volatile oil and energy prices. The literature examining the formation of household inflation expectations has pointed out that household inflation expectations are highly responsive to gasoline price changes (e.g., for the United States: Coibion and Gorodnichenko, 2013;Ehrmann et al, 2014). Figure 11 therefore plots household inflation expectations against energy-price growth, oil-price growth and food-price growth.…”