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Inflation Expectations of Japanese Households: Micro Evidence from a Consumer Confidence Survey

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  • Hori, Masahiro
  • Kawagoe, Masaaki

Abstract

Economists unanimously agree that economic agents’ expectations are crucially important in determining macroeconomic outcomes. However, mainstream macroeconomists usually simply assume that expectations are rational, leaving unexamined the fundamental question whether individual agents’ actual expectations are rational or not. Against this background, this study examines the properties of Japanese households’ inflation expectations using micro-based inflation expectations data from the Monthly Consumer Confidence Survey Covering All of Japan. Our analyses show that actual inflation expectations by Japanese households are not rational in the sense that they are upward biased, at least ex post, and individual households appear not to instantaneously incorporate into their expectations information that is freely available from news reports on the views of professional forecasters. Our findings, moreover, suggest that while the sticky information model appears to better explain inflation expectations dynamics (than rational expectations models), we encounter a handful of facts that look inconsistent with the simple model.

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Bibliographic Info

Paper provided by Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University in its series CIS Discussion paper series with number 530.

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Length: 38 p.
Date of creation: Nov 2011
Date of revision:
Handle: RePEc:hit:cisdps:530

Note: This is a revised version of a paper originally presented at the ESRI International Conference 2009 in Tokyo on June 29, 2009.
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Keywords: inflation expectations; consumer survey;

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  1. N. Gregory Mankiw & Ricardo Reis, 2001. "Sticky Information Versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve," NBER Working Papers 8290, National Bureau of Economic Research, Inc.
  2. Masahiro Hori & Satoshi Shimizutani, 2005. "Price Expectations and Consumption under Deflation: Evidence from Japanese Household Survey Data," Hi-Stat Discussion Paper Series d05-98, Institute of Economic Research, Hitotsubashi University.
  3. Batchelor, Roy & Dua, Pami, 1991. "Blue Chip Rationality Tests," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(4), pages 692-705, November.
  4. Lloyd B. Thomas, 1999. "Survey Measures of Expected U.S. Inflation," Journal of Economic Perspectives, American Economic Association, vol. 13(4), pages 125-144, Fall.
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Cited by:
  1. Ueno, Yuko, 2014. "Updating Behavior of Inflation Expectations: Evidence from Japanese Household Panel Data," CIS Discussion paper series 617, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.

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