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Household Informedness and Long‐Run Inflation Expectations: Experimental Evidence

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  • Carola Binder
  • Alex Rodrigue

Abstract

This article uses an experiment embedded in a survey to analyze the response of consumers' long‐run inflation expectations to information about the Federal Reserve's inflation target and past inflation. On average, respondents revise forecasts toward the 2% target with either information treatment. Forecast uncertainty and heterogeneity decline with the treatments, but remain substantial. Since the information in the treatments is publicly available, these findings are consistent with models of imperfect information in which agents do not fully and continually update their information sets or incorporate all available information into their expectations. Response to treatments varies with prior informedness and with demographic characteristics.

Suggested Citation

  • Carola Binder & Alex Rodrigue, 2018. "Household Informedness and Long‐Run Inflation Expectations: Experimental Evidence," Southern Economic Journal, John Wiley & Sons, vol. 85(2), pages 580-598, October.
  • Handle: RePEc:wly:soecon:v:85:y:2018:i:2:p:580-598
    DOI: 10.1002/soej.12306
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