Consumers' Attitudes and Their Inflation Expectations

Abstract

This paper studies consumers'in ‡ation expectations using micro-level data from the Surveys of Consumers conducted by University of Michigan. It shows that beyond the well-established socio-economic factors such as income, age or gender, other characteristics such as the households'…nancial situation and their purchasing attitudes are important determinants of their forecast accuracy. Respondents with current or expected …nancial di¢ culties, pessimistic attitudes about major purchases, or expectations that income will go down in the future 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 in ‡ation. Equivalent results are found during recessions.JEL classi…cation: C53, D84, E31

Are Survey Expectations Theory-Consistent? The Role of Central Bank Communication and News

“…Again in line with the macroeconomic effects observed in Table 7, consumers are less likely to be consistent with the Taylor rule if they observed news on high prices. Ehrmann et al (2015) show that the correlation between perceived news on price increases and inflation of retail gasoline prices is very high (0.63), thus one can expect that this type of news is perceived as a supply shock and therefore is not consistent with the Phillips curve relationship and the Taylor rule. For the Income Fisher equation, the likelihood of consistency is higher with news on high unemployment and lower if the consumers observed news on low unemployment or easy credit conditions.…”

“…The only exception is perceived news on high inflation. However, we have to take into account that perceived news on inflation mainly reflect consumer experiences with frequently purchased items, where gasoline prices play a predominant role (see Ehrmann et al, 2015). Regarding the sender channel, we can only assess whether specific communication milestones have increased the level of news in the economy or the average perception of news.…”

Consumer's inflation expectations in Brazil

“…Furthermore, directly following the conclusions found in Carroll (2003) and Ehrmann et al (2015) paper, more media exposure about the "inflation" subject would lead to agents being better informed and, hence, with more accurate expectations the following months. To test these hypotheses, a "media variable" is created.…”

“…To test these hypotheses, a "media variable" is created. This variable is not the same amongst the literature as Carroll computes an annual index of exposure based on The New York Times and the The Washington Post, whereas Ehrmann et al (2015) use a monthly one and other authors create their own index (Carroll 2003;Lamla and Lein 2014;Ehrmann et al 2015). A concern that has to be addressed is that the media may be biased in its reports which would generate distortions in expectation formations.…”

Understanding Survey Based Inflation Expectations

“…Mankiw, Reis & Wolfers (2004) document notable disagreement across surveys and the persistence of forecast errors thereby. Forecast errors from respondents to the Michigan Survey of Consumers are also predictable, based on, for example, age cohort, sex, and movements in recent prices (Johannsen, 2014, Ehrmann, Pfajfar & Santoro, 2015Malmendier & Nagel, 2016;Binder, 2016b;Schulhofer-Wohl & Kaplan, 2016). Coibion & Gorodnichenko (2012, 2015 document that forecast errors of the Survey of Professional Forecasters are predictable in the sense that they under react to incoming information, and utilize this predictability to differentiate models that deviate from pure rational expectations.…”