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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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File URL: http://www2.dse.unibo.it/wp/WP842.pdf
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Bibliographic Info

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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  1. Lanne, Markku & Luoma, Arto & Luoto, Jani, 2009. "A naïve sticky information model of households' inflation expectations," Journal of Economic Dynamics and Control, Elsevier, vol. 33(6), pages 1332-1344, June.
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  4. Meredith J. Beechey & Benjamin K. Johannsen & Andrew T. Levin, 2008. "Are long-run inflation expectations anchored more firmly in the Euro area than in the United States?," Finance and Economics Discussion Series 2008-23, Board of Governors of the Federal Reserve System (U.S.).
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  6. Verbeek, Marno & Nijman, Theo, 1992. "Can Cohort Data Be Treated as Genuine Panel Data?," Empirical Economics, Springer, vol. 17(1), pages 9-23.
  7. Ricardo Reis, 2004. "Inattentive Consumers," Working Papers 135, Princeton University, Woodrow Wilson School of Public and International Affairs, Discussion Papers in Economics..
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  9. 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.
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  11. Easaw Joshy & Golinelli Roberto, 2010. "Households Forming Inflation Expectations: Active and Passive Absorption Rates," The B.E. Journal of Macroeconomics, De Gruyter, vol. 10(1), pages 1-32, November.
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  15. Gefang, Deborah & Koop, Gary & Potter, Simon M., 2008. "The Dynamics of UK and US Inflation Expectations," SIRE Discussion Papers 2008-59, Scottish Institute for Research in Economics (SIRE).
  16. Marco Malgarini & Maurizio Pugno & Gennaro Zezza, 2008. "Life Satisfaction in Italy: Evidence from the ISAE Consumer Survey," Rivista di Politica Economica, SIPI Spa, vol. 98(5), pages 325-358, September.
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  19. Marco Malgarini, 2009. "Quantitative Inflation Perceptions and Expectations of Italian Consumers," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 68(1), pages 53-80, April.
  20. Andrew T. Levin & Fabio M. Natalucci & Jeremy M. Piger, 2004. "The macroeconomic effects of inflation targeting," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 51-80.
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Cited by:
  1. Lena Dräger & Michael J. Lamla, 2013. "Anchoring of Consumers’ Inflation Expectations: Evidence from Microdata," Macroeconomics and Finance Series 201305, Hamburg University, Department Wirtschaft und Politik.
  2. Ehrmann, Michael & Soudan, Michel & Stracca, Livio, 2012. "Explaining EU Citizens' Trust in the ECB in Normal and Crisis Times," Economics Series 289, Institute for Advanced Studies.
  3. José Antonio Murillo Garza & Paula Sánchez Romeu, 2012. "Testing the Predictive Power of Mexican Consumers' Inflation Expectations," Working Papers 2012-13, Banco de México.

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