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Partisan Bias in Inflation Expectations

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  • Oliver Bachmann
  • Klaus Gründler
  • Niklas Potrafke
  • Ruben Seiberlich

Abstract

We examine partisan bias in inflation expectations. Our dataset includes inflation expectations of the New York Fed’s Survey of Consumer Expectations over the period June 2013 to June 2018. The results show that inflation expectations were 0.46 percentage points higher in Republican-dominated than in Democratic-dominated US states when Barack Obama was US president. Compared to inflation expectations in Democratic-dominated states, inflation expectations in Republican-dominated states declined by 0.73 percentage points when Donald Trump became president. We employ the Blinder-Oaxaca decomposition method to disentangle the extent to which political ideology and other individual characteristics predict inflation expectations: around 25% of the total difference between inflation expectations in Democratic-dominated versus Republican-dominated states is based on how partisans respond to changes in the White House’s occupant (partisan bias). The results also corroborate the belief that voters’ misperceptions of economic conditions decline when the president belongs to the party that voters support.

Suggested Citation

  • Oliver Bachmann & Klaus Gründler & Niklas Potrafke & Ruben Seiberlich, 2019. "Partisan Bias in Inflation Expectations," CESifo Working Paper Series 7904, CESifo.
    • Handle: RePEc:ces:ceswps:_7904
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    1. Winnie Coleman & Dieter Nautz, 2023. "Inflation Expectations, Inflation Target Credibility, and the COVID‐19 Pandemic: Evidence from Germany," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 55(7), pages 1937-1953, October.
    2. Demgensky, Lisa & Fritsche, Ulrich, 2023. "Narratives on the causes of inflation in Germany: First results of a pilot study," WiSo-HH Working Paper Series 77, University of Hamburg, Faculty of Business, Economics and Social Sciences, WISO Research Laboratory.
    3. Diaf, Sami & Döpke, Jörg & Fritsche, Ulrich & Rockenbach, Ida, 2022. "Sharks and minnows in a shoal of words: Measuring latent ideological positions based on text mining techniques," European Journal of Political Economy, Elsevier, vol. 75(C).
    4. David Parsley & Helen Popper, 2021. "Risk Sharing in a Politically Divided Monetary Union," Open Economies Review, Springer, vol. 32(4), pages 649-669, September.
    5. Sami Diaf & Jörg Döpke & Ulrich Fritsche & Ida Rockenbach, 2020. "Sharks and minnows in a shoal of words: Measuring latent ideological positions of German economic research institutes based on text mining techniques," Macroeconomics and Finance Series 202001, University of Hamburg, Department of Socioeconomics.
    6. Hayo, Bernd & Méon, Pierre-Guillaume, 2023. "Measuring Household Inflation Perceptions and Expectations: The Effect of Guided vs Non-Guided Inflation Questions," Journal of Macroeconomics, Elsevier, vol. 78(C).
    7. Dorine Boumans & Klaus Gründler & Niklas Potrafke & Fabian Ruthardt, 2022. "Political Leaders and Macroeconomic Expectations: Evidence from a Global Survey Experiment," CESifo Working Paper Series 9974, CESifo.
    8. Gunda‐Alexandra Detmers & Sui‐Jade Ho & Özer Karagedikli, 2022. "Understanding Consumer Inflation Expectations during the COVID‐19 Pandemic," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 55(1), pages 141-154, March.
    9. Sangyup Choi & Sang-Hyun Kim & Myunghwan Andrew Lee & Siye Bae & Myungkyu Shim, 2022. "Partisan Bias in Inflation Beliefs: New Evidence from Korea," Working papers 2022rwp-205, Yonsei University, Yonsei Economics Research Institute.
    10. Ethan Struby & Christina Farhart, 2024. "Inflation Expectations and Political Polarization: Evidence from the Cooperative Election Study," Working Papers 2024-01, Carleton College, Department of Economics.

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    More about this item

    Keywords

    inflation expectation; partisan bias; political ideology; voters’ perceptions; Blinder-Oaxaca; US president;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • P44 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - National Income, Product, and Expenditure; Money; Inflation

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