Frequency bias in consumers׳ perceptions of inflation: An experimental study

Georganas, Sotiris; Healy, Paul J.; Li, Nan

doi:10.1016/j.euroecorev.2014.01.014

Cited by 64 publications

(38 citation statements)

References 22 publications

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“…Second, frequency bias may lead respondents to report food inflation perceptions based on the frequency of purchase rather than the total dollar expenditures. Given that prices of frequently purchased items inflate faster, this would bias their perceptions upward (Georganas, Healy, & Li, 2014).…”

Section: A Data Preview and Summarymentioning

confidence: 99%

“…In section IIIA, we saw that the distribution of baseline inflation expectations has considerable variance and a right skew: our sample overall has a mean baseline expectation of 5.57 and a median of 3.00, with a standard deviation of 6.98. Indeed, whereas median consumer inflation expectation survey responses generally track official estimates of realized inflation and sometimes even outperform professional forecasters (Thomas, 1999;Ang, Bekaert, & Wei, 2007), average consumer inflation expectations are systematically higher than realized inflation (Bryan & Venkatu, 2001a, 2001bGeorganas et al, 2014).…”

Section: A Heterogeneity In Expectations and Perception Gapsmentioning

confidence: 99%

See 1 more Smart Citation

The Price Is Right: Updating Inflation Expectations in a Randomized Price Information Experiment

Armantier

Nelson

Topa

et al. 2016

Review of Economics and Statistics

187

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Abstract-Using a unique, randomized information experiment embedded in a survey, this paper investigates how consumers' inflation expectations respond to new information. We find that respondents, on average, update their expectations in response to (certain types of) information, and do so sensibly, in a manner consistent with Bayesian updating. As a result of information provision, the distribution of inflation expectations converges toward its center and cross-sectional disagreement declines. We document heterogeneous information processing by gender and present suggestive evidence of respondents forecasting under asymmetric loss. Our results provide support for expectation-formation models in which agents form expectations rationally but face information constraints.A fuller understanding of the public's learning rules would improve the central bank's capacity to assess its own credibility, to evaluate the implications of its policy decisions and communications strategy, and perhaps to forecast inflation.Ben Bernanke (2007)

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Section: A Data Preview and Summarymentioning

confidence: 99%

Section: A Heterogeneity In Expectations and Perception Gapsmentioning

confidence: 99%

The Price Is Right: Updating Inflation Expectations in a Randomized Price Information Experiment

Armantier

Nelson

Topa

et al. 2016

Review of Economics and Statistics

187

View full text Add to dashboard Cite

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“…In ‡ation expectations are also determined by the in ‡ation that consumers actually experience -…rst, in ‡ation expectations are shaped much more by the in ‡ation rate of consumption baskets that relate to the respective socio-economic group to which the individual belongs than by the overall in ‡ation indices, at least for low-education and low-income consumers (Pfajfar and Santoro, 2009;Menz and Poppitz, 2013); second, in ‡ation expectations vary positively with the in ‡ation experience that individuals have undergone over their lifetime (Lombardelli and Saleheen, 2003;Malmendier and Nagel, 2013); third, more frequently purchased items have been found to have a higher impact on in ‡ation perceptions and in ‡ation expectations (Ranyard, Missier, Bonini, Duxbury, and Summers, 2008;Georganas, Healy, and Li, 2014).…”

Section: Introductionmentioning

confidence: 99%

Consumers' Attitudes and Their Inflation Expectations

Ehrmann

Pfajfar

Santoro

2015

FEDS

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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

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“…In ‡ation expectations are also shaped by the in ‡ation that consumers actually experience -…rst, in ‡ation expectations are shaped much more by the in ‡ation rate of consumption baskets that relate to the respective socio-economic group to which the individual belongs than by the overall in ‡ation indices, at least for low-education and low-income consumers (Pfajfar and Santoro, 2009;Menz and Poppitz, 2013); second, in‡ation expectations vary positively with the in ‡ation experience that individuals have undergone over their lifetime (Lombardelli and Saleheen, 2003;Malmendier and Nagel, 2013); third, more frequently purchased items have been found to have a higher impact on in ‡ation perceptions and in ‡ation expectations (Ranyard, Missier, Bonini, Duxbury, and Summers, 2008;Georganas, Healy, and Li, 2014). The evolution of consumers'in ‡ation expectations has also been studied.…”

Section: Introductionmentioning

confidence: 99%

Consumer Attitudes and the Epidemiology of Inflation Expectations

2014

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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.

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Frequency bias in consumers׳ perceptions of inflation: An experimental study

Abstract: This is the unspecified version of the paper.This version of the publication may differ from the final published version. Permanent

Cited by 64 publications

References 22 publications

The Price Is Right: Updating Inflation Expectations in a Randomized Price Information Experiment

The Price Is Right: Updating Inflation Expectations in a Randomized Price Information Experiment

Consumers' Attitudes and Their Inflation Expectations

Consumer Attitudes and the Epidemiology of Inflation Expectations

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