Household inflation expectations and inflation dynamics (original) (raw)

What determines households inflation expectations? Theory and evidence from a household survey

European Economic Review, 2013

The purpose of the present paper is to study how households form inflation expectations using a novel survey dataset of Italian households. We extend the existing 'inattentiveness' literature by incorporating explicitly inflation targets and distinguishing between aggregate and disaggregate dynamics based on demographic groups. We also consider both the short-and long-run dynamics as households update their inflation expectations. While we find clear distinctions between the various demographic groups behavior, households tend to absorb professionals forecast. The short-run dynamics also indicate they not only overreact when updating their expectations but also adjust asymmetrically to any perceived momentum change of future inflation.

Do Actions Speak Louder Than Words? Household Expectations of Inflation Based on Micro Consumption Data

Journal of Money, Credit and Banking, 2009

Survey data on household expectations of inflation are routinely used in economic analysis, yet it is not clear to what extent households are able to articulate their expectations in survey interviews. We propose an alternative approach to recovering households' implicit expectations of inflation from their consumption expenditures. We show that these implicit expectations have predictive power for CPI inflation. They are better predictors of CPI inflation than survey responses, except for highly educated consumers. Moreover, households' implicit inflation expectations respond to inflation news, consistent with recent work on the transmission of information across consumers. The response of consumers' expectations to inflation news tends to increase with their level of education. Our evidence strengthens the case for macroeconomic models with sticky information.

HOUSEHOLDS SURVEY AND INFLATION EXPECTATION

Economics and Sociology, 2020

Central Bank of Azerbaijan intends to move to the Inflation Targeting regime in the medium term. The new regime requires the development of new models and methodologies. Though the Bank's researchers have already developed different advanced models, most of them use the quantitative factor analysis of inflation. The current paper investigates an alternative approach that allows the estimation of inflation expectations by using the survey data. This approach, which has never been used before in Azerbaijan, helps to understand the behavior of the households in detail and enables converting qualitative data into quantitative data. Assuming that households' responses have normal and uniform probability distributions, the inflation expectations were estimated for the period of 2013Q3-2020Q1 in Azerbaijan. JEL Classification: C01, C15, C83, D12

Consumer Inflation Expectations and Household Weights

2020

There are substantial differences between general inflation expectations as reported in consumer surveys and CPI inflation. This paper proposes that some of this difference can be explained by the fact that households are not weighted the same in the two measures. In the CPI, households are weighted according to their expenditure, while they have equal weights in the consumer survey. To estimate the impact of the weighting difference, it is assumed that households predict the inflation of their own consumption basket. New empirical evidence is provided that supports this assumption as consumers do not predict CPI inflation and they predict a basket of goods. The estimated difference in mean expectations explained by the difference in weights is 0.7 percentage points or 20-25% of the difference for the US. JEL: E31

Inflation Expectations of Households: Do They Influence Wage-Price Dynamics in India?

Macroeconomics and Finance in Emerging Market Economies, 2020

This paper examines the usefulness of survey-based measures of inflation expectations to predict inflation using hybrid versions of New Keynesian Phillips Curve (NKPC). While both 3 months ahead and 1-year ahead inflation expectations of households emerge statistically significant in explaining and predicting inflation in India, effectively they work as substitutes of backward looking expectations given that household expectations are found to be largely adaptive. Unlike in other countries, this paper does not find much evidence on flattening of the Phillips curve. Also, no robust evidence is found on expectations induced wage pressures influencing CPI inflation.

Updating inflation expectations: Evidence from micro-data

Utilizing the Michigan Household Consumer survey's rotating panel microstructure we can identify if individuals have adjusted their expectations towards inflation. This allows us to directly capture the updating behavior of individual consumers regarding their short-and long-run inflation expectations.

Digging into the Downward Trend in Consumer Inflation Expectations

Economic Commentary (Federal Reserve Bank of Cleveland)

Since mid-2014, the long-run inflation expectations of consumers have been declining. We analyze University of Michigan Surveys of Consumers microdata and find that a decline in uncertainty about future inflation is a modest part of the story over this period—but it represents the entire story when considering changes in expectations since 2012.