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The formation of inflation expectations: an empirical analysis for the UK

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  • David G. Blanchflower
  • Conall MacCoille

Abstract

This paper uses micro-data from three surveys for the UK to consider how individuals form inflation expectations. Generally, we find significant non-response bias in all surveys, with non-respondents especially likely to be young, female, less educated and with lower incomes. A number of demographic generalizations can be made based on the surveys. Inflation expectations rise with age, but the more highly educated and home owners tend to have lower inflation expectations. These groups are also more likely to be accurate in their estimates of official inflation twelve months ahead, and have less backward-looking expectations.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15388.

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Date of creation: Sep 2009
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Handle: RePEc:nbr:nberwo:15388

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  1. Mankiw, N. Gregory & Reis, Ricardo & Wolfers, Justin, 2003. "Disagreement about Inflation Expectations," Research Papers, Stanford University, Graduate School of Business 1807, Stanford University, Graduate School of Business.
  2. Gerard O'Reilly & Karl Whelan, 2005. "Has Euro-Area Inflation Persistence Changed Over Time?," The Review of Economics and Statistics, MIT Press, vol. 87(4), pages 709-720, November.
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  6. Blanchflower, David G. & Oswald, Andrew J., 2001. "Well-Being Over Time in Britain and the USA," The Warwick Economics Research Paper Series (TWERPS) 616, University of Warwick, Department of Economics.
  7. Refet S. Gürkaynak & Brian Sack & Eric Swanson, 2002. "Market-based measures of monetary policy expectations," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2002-40, Board of Governors of the Federal Reserve System (U.S.).
  8. Refet S. Gürkaynak & Brian Sack & Eric Swanson, 2003. "The excess sensitivity of long-term interest rates: evidence and implications for macroeconomic models," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2003-50, Board of Governors of the Federal Reserve System (U.S.).
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  14. Mitchell, James & Weale, Martin R., 2007. "The rationality and reliability of expectations reported by British households: micro evidence from the British household panel survey," Discussion Paper Series 1: Economic Studies 2007,19, Deutsche Bundesbank, Research Centre.
  15. Pfajfar, D. & Santoro, E., 2008. "Asymmetries in Inflation Expectation Formation Across Demographic Groups," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 0824, Faculty of Economics, University of Cambridge.
  16. James H. Stock & Mark W. Watson, 2006. "Why Has U.S. Inflation Become Harder to Forecast?," NBER Working Papers 12324, National Bureau of Economic Research, Inc.
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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, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University 617, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.
  2. 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.
  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.
  4. Gilberto Tadeu Lima & Mark Setterfield, Jaylson Jair da Silveira, 2013. "Inflation Targeting and Macroeconomic Stability with Heterogeneous Inflation Expectations," Working Papers, Department of Economics, University of São Paulo (FEA-USP) 2013_11, University of São Paulo (FEA-USP).
  5. Menz, Jan-Oliver & Poppitz, Philipp, 2013. "Households' disagreement on inflation expectations and socioeconomic media exposure in Germany," Discussion Papers 27/2013, Deutsche Bundesbank, Research Centre.
  6. Wändi Bruine de Bruin & Wilbert van der Klaauw & Giorgio Topa, 2011. "Expectations of inflation: the biasing effect of thoughts about specific prices," Staff Reports, Federal Reserve Bank of New York 489, Federal Reserve Bank of New York.
  7. Michael Debabrata Patra & Partha Ray, 2010. "Inflation Expectations and Monetary Policy in India," IMF Working Papers 10/84, International Monetary Fund.
  8. Georganas, Sotiris & Healy, Paul J. & Li, Nan, 2014. "Frequency bias in consumers׳ perceptions of inflation: An experimental study," European Economic Review, Elsevier, Elsevier, vol. 67(C), pages 144-158.
  9. Patrick A. Imam, 2013. "Shock from Graying," IMF Working Papers 13/191, International Monetary Fund.

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