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A naïve sticky information model of households' inflation expectations

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Author Info
Lanne, Markku
Luoma, Arto
Luoto, Jani

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Abstract

This paper shows that the Michigan survey data on inflation expectations is consistent with a simple sticky information model where a significant proportion of households base their inflation expectations on the past release of actual inflation rather than the rational forward-looking forecast. In particular, the model can explain both the mean and cross-sectional distribution of households' inflation expectations.

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File URL: http://www.sciencedirect.com/science/article/B6V85-4VK6N5T-2/2/575f3a90671d8c40cb84fed84b72806b
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Publisher Info
Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 33 (2009)
Issue (Month): 6 (June)
Pages: 1332-1344
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:eee:dyncon:v:33:y:2009:i:6:p:1332-1344

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Related research
Keywords: Inflation expectations Heterogeneous expectations Survey expectations Sticky information Bayesian analysis;

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References listed on IDEAS
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  1. N. Gregory Mankiw & Ricardo Reis, 2002. "Sticky Information Versus Sticky Prices: A Proposal To Replace The New Keynesian Phillips Curve," The Quarterly Journal of Economics, MIT Press, vol. 117(4), pages 1295-1328, November. [Downloadable!] (restricted)
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  2. N. Gregory Mankiw & Ricardo Reis, 2006. "Pervasive Stickiness," American Economic Review, American Economic Association, vol. 96(2), pages 164-169, May. [Downloadable!]
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  3. Michael F. Bryan & Guhan Venkatu, 2001. "The demographics of inflation opinion surveys," Economic Commentary, Federal Reserve Bank of Cleveland, issue Oct 15. [Downloadable!]
  4. Michael F. Bryan & Guhan Venkatu, 2001. "The curiously different inflation perspectives of men and women," Economic Commentary, Federal Reserve Bank of Cleveland, issue Nov. [Downloadable!]
  5. Andres, Javier & Lopez-Salido, J. David & Nelson, Edward, 2005. "Sticky-price models and the natural rate hypothesis," Journal of Monetary Economics, Elsevier, vol. 52(5), pages 1025-1053, July. [Downloadable!] (restricted)
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  6. Ricardo Reis, 2004. "Inattentive Consumers," NBER Working Papers 10883, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Trabandt, Mathias, 2007. "Sticky Information vs. Sticky Prices: A Horse Race in a DSGE Framework," Working Paper Series 209, Sveriges Riksbank (Central Bank of Sweden). [Downloadable!]
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  8. Anthony Garratt & Gary Koop & Emi Mise & Shaun P Vahey, 2007. "Real-time Prediction with UK Monetary Aggregates in the Presence of Model Uncertainty," Birkbeck Working Papers in Economics and Finance 0714, Birkbeck, School of Economics, Mathematics & Statistics. [Downloadable!]
    Other versions:
  9. Mankiw, N. Gregory & Reis, Ricardo & Wolfers, Justin, 2003. "Disagreement about Inflation Expectations," Research Papers 1807, Stanford University, Graduate School of Business. [Downloadable!]
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  10. Andrew Atkeson & Lee E. Ohanian., 2001. "Are Phillips curves useful for forecasting inflation?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 2-11. [Downloadable!]
  11. N. Gregory Mankiw & Ricardo Reis, 2007. "Sticky Information in General Equilibrium," Journal of the European Economic Association, MIT Press, vol. 5(2-3), pages 603-613, 04-05. [Downloadable!] (restricted)
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  12. Khan, Hashmat & Zhu, Zhenhua, 2006. "Estimates of the Sticky-Information Phillips Curve for the United States," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(1), pages 195-207, February. [Downloadable!] (restricted)
  13. Stock, James H & Watson, Mark W, 2002. "Macroeconomic Forecasting Using Diffusion Indexes," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(2), pages 147-62, April.
  14. Christopher A. Sims, 2002. "The Role of Models and Probabilities in the Monetary Policy Process," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 33(2002-2), pages 1-62. [Downloadable!]
  15. repec:bep:mactop:v:8:y:2008:i:1:p:1540-1540 is not listed on IDEAS
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  16. Ricardo Reis, 2006. "Inattentive Producers," Review of Economic Studies, Blackwell Publishing, vol. 73(3), pages 793-821, 07. [Downloadable!] (restricted)
    Other versions:
  17. Christopher D Carroll, 2001. "The Epidemiology of Macroeconomic Expectations," Economics Working Paper Archive 462, The Johns Hopkins University,Department of Economics. [Downloadable!]
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  18. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September. [Downloadable!] (restricted)
  19. William A. Branch, 2004. "The Theory of Rationally Heterogeneous Expectations: Evidence from Survey Data on Inflation Expectations," Economic Journal, Royal Economic Society, vol. 114(497), pages 592-621, 07. [Downloadable!] (restricted)
  20. Branch, William A., 2007. "Sticky information and model uncertainty in survey data on inflation expectations," Journal of Economic Dynamics and Control, Elsevier, vol. 31(1), pages 245-276, January. [Downloadable!] (restricted)
  21. repec:bep:maccon:v:6:y:2006:i:1:p:1374-1374 is not listed on IDEAS
  22. Souleles, Nicholas S, 2004. "Expectations, Heterogeneous Forecast Errors, and Consumption: Micro Evidence from the Michigan Consumer Sentiment Surveys," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(1), pages 39-72, February.
  23. Olivier Coibion, 2007. "Testing the Sticky Information Phillips Curve," Working Papers 61, Department of Economics, College of William and Mary. [Downloadable!]
  24. Michael T. Kiley, 2007. "A Quantitative Comparison of Sticky-Price and Sticky-Information Models of Price Setting," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(s1), pages 101-125, 02. [Downloadable!] (restricted)
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  25. Christopher D. Carroll, 2003. "Macroeconomic Expectations Of Households And Professional Forecasters," The Quarterly Journal of Economics, MIT Press, vol. 118(1), pages 269-298, February. [Downloadable!] (restricted)
    Other versions:
  26. Jonas D. M. Fisher & Chin Te Liu & Ruilin Zhou, 2002. "When can we forecast inflation?," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q I, pages 32-44. [Downloadable!]
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