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Do Households Anchor their Inflation Expectations? Theory and Evidence from a Household Survey

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  • J. Easaw
  • R. Golinelli
  • M. Malgarini

Abstract

The purpose of the present paper is to study how households form inflation expectations. Using a novel survey-base dataset of Italian households’ opinions of inflation we investigate two separate, but related, types of behavior: ‘inattentiveness’ and ‘anchoring’. The present analysis extends the existing literature by incorporating explicitly inflation targets and distinguishing between aggregate and disaggregate dynamics based on demographic groups. In addition, we extend the literature by considering both the short- and long-run dynamics as households update their inflation expectations while also accounting for their state-varying behavior. All these issues provide important insights into understanding actual inflation dynamics and the conduct of monetary policy.

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Paper provided by Dipartimento Scienze Economiche, Universita' di Bologna in its series Working Papers with number wp842.

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Date of creation: Aug 2012
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Handle: RePEc:bol:bodewp:wp842

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Citations

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Cited by:
  1. José Antonio Murillo Garza & Paula Sánchez Romeu, 2012. "Testing the Predictive Power of Mexican Consumers' Inflation Expectations," Working Papers, Banco de México 2012-13, Banco de México.
  2. Michael J. Lamla & Lena Dräger, 2013. "Anchoring of Consumers’ Inflation Expectations: Evidence from Microdata," KOF Working papers, KOF Swiss Economic Institute, ETH Zurich 13-339, KOF Swiss Economic Institute, ETH Zurich.
  3. Ehrmann, Michael & Soudan, Michel & Stracca, Livio, 2012. "Explaining EU Citizens' Trust in the ECB in Normal and Crisis Times," Economics Series, Institute for Advanced Studies 289, Institute for Advanced Studies.

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