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Partisan Bias in Inflation Expectations

Author

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  • Oliver Bachmann
  • Klaus Gründler
  • Niklas Potrafke
  • Ruben Seiberlich

Abstract

We examine partisan bias in inflation expectations. Our dataset includes inflation expectations of the New York Fed’s Survey of Consumer Expectations over the period June 2013 to June 2018. The results show that inflation expectations were 0.46 per centage points higher in Republican-dominated than in Democratic-dominated US states when Barack Obama was US president. Compared to inflation expectations in Democratic-dominated states, inflation expectations in Republican-dominated states declined by 0.73 percentage points when Donald Trump became president. We employ the Blinder-Oaxaca decomposition method to disentangle the extent to which political ideology and other individual characteristics predict inflation expectations: around 25% of the total difference between inflation expectations in Democratic-dominated versus Republican-dominated states is based on how partisans respond to changes in the White House’s occupant (partisan bias). The results also corroborate the belief that voters’ misperceptions of economic conditions decline when the president belongs to the party that voters support.

Suggested Citation

  • Oliver Bachmann & Klaus Gründler & Niklas Potrafke & Ruben Seiberlich, 2019. "Partisan Bias in Inflation Expectations," ifo Working Paper Series 311, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
  • Handle: RePEc:ces:ifowps:_311
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    More about this item

    Keywords

    Inflation expectation; partisan bias; political ideology; voters’ perceptions; Blinder-Oaxaca; US president;

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • P44 - Economic Systems - - Other Economic Systems - - - National Income, Product, and Expenditure; Money; Inflation

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