Advanced Search
MyIDEAS: Login to save this paper or follow this series

Imperfect Information and Inflation Expectations: Evidence from Microdata

Contents:

Author Info

Abstract

We investigate the updating behavior of individual consumers regarding their short and long-run inflation expectations. Utilizing the University of Michigan Survey of Consumer’s rotating panel microstructure, we can identify whether individuals adjust their inflation expectations over a period of six months. We find evidence that the updating frequency has been underestimated. Furthermore, looking at the possible determinants of an update we find support for imperfect information models. Moreover, individual expectations are found to be more accurate after an update and forecast accuracy is affected by inflation volatility measures and news regarding inflation. Finally, the updating frequency is found to significantly move spreads in bond markets.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: https://kofportal.kof.ethz.ch/publications/download/2825/wp_329.pdf
Download Restriction: no

Bibliographic Info

Paper provided by KOF Swiss Economic Institute, ETH Zurich in its series KOF Working papers with number 13-329.

as in new window
Length: 38 pages
Date of creation: Feb 2013
Date of revision:
Handle: RePEc:kof:wpskof:13-329

Contact details of provider:
Postal: Leonhardstrasse 21, CH-8092 Zürich
Phone: +41 44 632 42 39
Fax: +41 44 632 12 18
Email:
Web page: http://www.kof.ethz.ch
More information through EDIRC

Related research

Keywords: Rational Inattention; updating inflation expectations; microdata; news;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Ricardo Reis, 2004. "Inattentive Consumers," Working Papers, Princeton University, Woodrow Wilson School of Public and International Affairs, Discussion Papers in Economics. 135, Princeton University, Woodrow Wilson School of Public and International Affairs, Discussion Papers in Economics..
  2. Lena Dräger, 2011. "Endogenous Persistence with Recursive Inattentiveness," KOF Working papers, KOF Swiss Economic Institute, ETH Zurich 11-285, KOF Swiss Economic Institute, ETH Zurich.
  3. Christopher D. Carroll, 2003. "Macroeconomic Expectations Of Households And Professional Forecasters," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 118(1), pages 269-298, February.
  4. Damjan Pfajfar & Emiliano Santoro, 2013. "News on Inflation and the Epidemiology of Inflation Expectations," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 45(6), pages 1045-1067, 09.
  5. Jonas Dovern & Joerg Doepke & Ulrich Fritsche & Jirka Slacalek, 2006. "Sticky Information Phillips Curves: European Evidence," Macroeconomics and Finance Series, Hamburg University, Department Wirtschaft und Politik 200604, Hamburg University, Department Wirtschaft und Politik.
  6. Jörg Döpke & Jonas Dovern & Ulrich Fritsche & Jiri Slacalek, 2006. "The Dynamics of European Inflation Expectations," Discussion Papers of DIW Berlin 571, DIW Berlin, German Institute for Economic Research.
  7. Fama, Eugene F. & French, Kenneth R., 1989. "Business conditions and expected returns on stocks and bonds," Journal of Financial Economics, Elsevier, Elsevier, vol. 25(1), pages 23-49, November.
  8. Maćkowiak, Bartosz & Wiederholt, Mirko, 2009. "Optimal sticky prices under rational inattention," Working Paper Series, European Central Bank 1009, European Central Bank.
  9. Filip Matejka & Alisdair McKay, 2011. "Rational Inattention to Discrete Choices: A New Foundation for the Multinomial Logit Model," CERGE-EI Working Papers wp442, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  10. Ivo Welch & Amit Goyal, 2008. "A Comprehensive Look at The Empirical Performance of Equity Premium Prediction," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 21(4), pages 1455-1508, July.
  11. Yuriy Gorodnichenko & Olivier Coibion, 2010. "What can survey forecasts tell us about informational rigidities?," 2010 Meeting Papers, Society for Economic Dynamics 277, Society for Economic Dynamics.
  12. Mankiw, N. Gregory & Reis, Ricardo, 2002. "Sticky Information Versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve," Scholarly Articles 3415324, Harvard University Department of Economics.
  13. Olivier Coibion & Yuriy Gorodnichenko, 2010. "Information Rigidity and the Expectations Formation Process: A Simple Framework and New Facts," Working Papers, Department of Economics, College of William and Mary 102, Department of Economics, College of William and Mary.
  14. Ball, Laurence & Gregory Mankiw, N. & Reis, Ricardo, 2005. "Monetary policy for inattentive economies," Journal of Monetary Economics, Elsevier, Elsevier, vol. 52(4), pages 703-725, May.
  15. Michael J. Lamla & Samad Sarferaz, 2012. "Updating Inflation Expectations," KOF Working papers, KOF Swiss Economic Institute, ETH Zurich 12-301, KOF Swiss Economic Institute, ETH Zurich.
  16. Michael J. Lamla & Sarah M. Lein, 2008. "The Role of Media for Consumers' Inflation Expectation Formation," KOF Working papers, KOF Swiss Economic Institute, ETH Zurich 08-201, KOF Swiss Economic Institute, ETH Zurich.
  17. 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, Blackwell Publishing, vol. 36(1), pages 39-72, February.
  18. Sims, Christopher A., 2003. "Implications of rational inattention," Journal of Monetary Economics, Elsevier, Elsevier, vol. 50(3), pages 665-690, April.
  19. Michael Woodford, 2001. "Imperfect Common Knowledge and the Effects of Monetary Policy," NBER Working Papers 8673, National Bureau of Economic Research, Inc.
  20. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, Elsevier, vol. 4(2), pages 103-124, April.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Lena Dräger & Ulrich Fritsche, 2013. "Don't Worry, Be Right! Survey Wording Effects on In flation Perceptions and Expectations," Macroeconomics and Finance Series, Hamburg University, Department Wirtschaft und Politik 201308, Hamburg University, Department Wirtschaft und Politik.
  2. Ueno, Yuko, 2014. "Updating Behavior of Inflation Expectations: Evidence from Japanese Household Panel Data," CIS Discussion paper series, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University 617, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:kof:wpskof:13-329. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.