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News on Inflation and the Epidemiology of Inflation Expectations

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  • DAMJAN PFAJFAR
  • EMILIANO SANTORO

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 ). We use both aggregate and household‐level data from the Survey Research Center at the University of Michigan. We highlight a fundamental disconnection among 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 toward professional forecasters’ mean forecast.
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Suggested Citation

  • Damjan Pfajfar & Emiliano Santoro, 2013. "News on Inflation and the Epidemiology of Inflation Expectations," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(6), pages 1045-1067, September.
    • Handle: RePEc:mcb:jmoncb:v:45:y:2013:i:6:p:1045-1067
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    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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