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Heterogeneus Inflation Expectations Learning and Market Outcomes

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  • Carlos Madeira
  • Basit Zafar

Abstract

Using the panel component of the Michigan Survey of Consumers we estimate a learning model of inflation expectations, allowing for heterogeneous use of both private information and lifetime inflation experience. We find that women, ethnic minorities, and less educated agents have a higher degree of heterogeneity in their private information, and are slower to update their expectations. During the 2000s, consumers believe inflation to be more persistent in the short term, but temporary fluctuations in inflation have less effect on expectations of personal income and long-term inflation. Finally, we find evidence that heterogeneous expectations by consumers generate higher mark-ups and inflation.

Suggested Citation

  • Carlos Madeira & Basit Zafar, 2012. "Heterogeneus Inflation Expectations Learning and Market Outcomes," Working Papers Central Bank of Chile 667, Central Bank of Chile.
    • Handle: RePEc:chb:bcchwp:667
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    File URL: https://www.bcentral.cl/documents/33528/133326/DTBC_667.pdf
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    References listed on IDEAS

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    1. Olivier Armantier & Wändi Bruine de Bruin & Giorgio Topa & Wilbert van der Klaauw & Basit Zafar, 2015. "Inflation Expectations And Behavior: Do Survey Respondents Act On Their Beliefs?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 56(2), pages 505-536, May.
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    Cited by:

    1. Carvalho, Carlos & Nechio, Fernanda, 2014. "Do people understand monetary policy?," Journal of Monetary Economics, Elsevier, vol. 66(C), pages 108-123.

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