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The Expectations of Others

Author

Listed:
  • Garcia-Lembergman, Ezequiel
  • Hajdini, Ina
  • Leer, John
  • Pedemonte, Mathieu
  • Schoenle, Raphael

Abstract

Based on a framework of memory and recall that accounts for social networks, we provide conditions under which social networks can amplify expectations. We provide evidence for several predictions of the model using a novel dataset on inflation expectations and social network connections: Inflation expectations in the social network are statistically significantly, positively associated with individual inflation expectations; the relationship is stronger for groups that share common demographic characteristics, such as gender, income or political affiliation. An instrumental variable approach further establishes causality of these results, while also showing that salient information transmits strongly through the network. Our estimates imply that the influence of the social network overall amplifies but does not destabilize inflation expectations.

Suggested Citation

  • Garcia-Lembergman, Ezequiel & Hajdini, Ina & Leer, John & Pedemonte, Mathieu & Schoenle, Raphael, 2023. "The Expectations of Others," CEPR Discussion Papers 18243, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:18243
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    Cited by:

    1. is not listed on IDEAS
    2. Taniya Ghosh & Abhishek Gorsi, 2024. "Inflation expectations and keeping up with the Joneses," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2024-018, Indira Gandhi Institute of Development Research, Mumbai, India.

    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E71 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on the Macro Economy

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