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News on Inflation and the Epidemiology of Inflation Expectations


Abstract: This paper examines the nexus between news coverage on inflation and households' inflation expectations. In doing so, we test the epidemiological foundations of the sticky information model (Carroll, 2003, 2006). We use both aggregate and household-level data from the Survey Research Center at the University of Michigan. We highlight a fundamental disconnection between news on inflation, consumers' frequency of expectation updating and the accuracy of their expectations. Our evidence provides at best weak support to the epidemiological framework, as most of the consumers who update their expectations do not revise them towards professional forecasters' mean forecast.

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Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 45 (2013)
Issue (Month): 6 (09)
Pages: 1045-1067

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Handle: RePEc:mcb:jmoncb:v:45:y:2013:i:6:p:1045-1067
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  1. Lanne, Markku & Luoma, Arto & Luoto, Jani, 2008. "A Naïve Sticky Information Model of Households’ Inflation Expectations," MPRA Paper 8663, University Library of Munich, Germany.
  2. Alan S. Blinder & Alan B. Krueger, 2004. "What Does the Public Know about Economic Policy, and How Does It Know It?," Working Papers 103, Princeton University, Department of Economics, Center for Economic Policy Studies..
  3. N. Gregory Mankiw & Ricardo Reis, 2001. "Sticky Information: A Model of Monetary Nonneutrality and Structural Slumps," Harvard Institute of Economic Research Working Papers 1941, Harvard - Institute of Economic Research.
  4. 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.
  5. Mark Doms & Norman J. Morin, 2004. "Consumer sentiment, the economy, and the news media," Working Paper Series 2004-09, Federal Reserve Bank of San Francisco.
  6. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March.
  7. 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, vol. 36(1), pages 39-72, February.
  8. repec:pri:cepsud:99blinderkrueger is not listed on IDEAS
  9. Ricardo Nunes, 2009. "On the Epidemiological Microfoundations of Sticky Information," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 71(5), pages 643-657, October.
  10. Alan Blinder & Alan Krueger, 2004. "What Does the Public Know about Economic Policy, and How Does It Know It?," Working Papers 875, Princeton University, Department of Economics, Industrial Relations Section..
  11. Christopher D. Carroll, 2003. "Macroeconomic Expectations of Households and Professional Forecasters," The Quarterly Journal of Economics, Oxford University Press, vol. 118(1), pages 269-298.
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