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Heterogeneus Inflation Expectations Learning and Market Outcomes

  • Carlos Madeira
  • Basit Zafar

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.

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Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 667.

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Date of creation: May 2012
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Handle: RePEc:chb:bcchwp:667
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  8. Robert Rich & Joseph Tracy, 2006. "The relationship between expected inflation, disagreement, and uncertainty: evidence from matched point and density forecasts," Staff Reports 253, Federal Reserve Bank of New York.
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