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Downward Rigidity in Households' Price Expectations: An Analysis Based on the Bank of Japan's 'Opinion Survey on the General Public's Views and Behavior'

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  • Koichiro Kamada

    (Bank of Japan)

Abstract

This paper investigates the characteristics of households' inflation expectations using the micro-data of the Opinion Survey on the General Public's Views and Behavior conducted by the Bank of Japan. The results of the Kahn test indicate the existence of strong downward rigidity in households' price expectations. One consequence of this downward rigidity is that survey answers strongly react to shocks to inflation expectations in a high inflation environment, but only weakly in a low inflation environment. Furthermore, this downward rigidity may hide potential links between inflation expectations and other economic indicators and may produce spurious correlations between them. To overcome these problems, this paper adjusts the distribution of survey answers on inflation expectations for downward rigidity. Using this adjusted distribution, the paper examines the relationships between households' inflation expectations and their views on various economic issues. The main results are as follows. From the end of 2005 onward, a negative correlation between households' inflation expectations and their outlook for economic conditions can be observed. Regarding the activities of the Bank of Japan, the following relationships can be observed from 2006. First, the more strongly households are interested in the Bank's activities, the more stable are their inflation expectations. And second, the more confidence households have in the Bank, the more tightly are their inflation expectations anchored.

Suggested Citation

  • Koichiro Kamada, 2013. "Downward Rigidity in Households' Price Expectations: An Analysis Based on the Bank of Japan's 'Opinion Survey on the General Public's Views and Behavior'," Bank of Japan Working Paper Series 13-E-15, Bank of Japan.
    • Handle: RePEc:boj:bojwps:13-e-15
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    References listed on IDEAS

    as
    1. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
    2. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
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    Cited by:

    1. Hibiki Ichiue & Shusaku Nishiguchi, 2015. "Inflation Expectations And Consumer Spending At The Zero Bound: Micro Evidence," Economic Inquiry, Western Economic Association International, vol. 53(2), pages 1086-1107, April.
    2. Tomiyuki Kitamura & Masaki Tanaka, 2019. "Firms' Inflation Expectations under Rational Inattention and Sticky Information: An Analysis with a Small-Scale Macroeconomic Model," Bank of Japan Working Paper Series 19-E-16, Bank of Japan.
    3. Sohei Kaihatsu & Jouchi Nakajima, 2015. "Has Trend Inflation Shifted?: An Empirical Analysis with a Regime-Switching Model," Bank of Japan Working Paper Series 15-E-3, Bank of Japan.
    4. Yosuke Uno & Saori Naganuma & Naoko Hara, 2018. "New Facts about Firms' Inflation Expectations: Simple Tests for a Sticky Information Model," Bank of Japan Working Paper Series 18-E-14, Bank of Japan.
    5. Yuichiro Ito & Sohei Kaihatsu, 2016. "Effects of Inflation and Wage Expectations on Consumer Spending: Evidence from Micro Data," Bank of Japan Working Paper Series 16-E-7, Bank of Japan.
    6. Koichiro Kamada & Jouchi Nakajima & Shusaku Nishiguchi, 2015. "Are Household Inflation Expectations Anchored in Japan?," Bank of Japan Working Paper Series 15-E-8, Bank of Japan.
    7. Hibiki Ichiue & Maiko Koga & Tatsushi Okuda & Tatsuya Ozaki, 2019. "Households' Liquidity Constraint, Optimal Attention Allocation, and Inflation Expectations," Bank of Japan Working Paper Series 19-E-8, Bank of Japan.
    8. Yusuke Takahashi & Yoichiro Tamanyu, 2022. "Households' Perceived Inflation and CPI Inflation: the Case of Japan," Bank of Japan Working Paper Series 22-E-1, Bank of Japan.
    9. Kaihatsu, Sohei & Nakajima, Jouchi, 2018. "Has trend inflation shifted?: An empirical analysis with an equally-spaced regime-switching model," Economic Analysis and Policy, Elsevier, vol. 59(C), pages 69-83.

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