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Greater Than the Sum of the Parts: Aggregate vs. Aggregated Inflation Expectations

Author

Listed:
  • Alexander Dietrich
  • Edward S. Knotek
  • Kristian Ove R. Myrseth
  • Robert W. Rich
  • Raphael Schoenle
  • Michael Weber

Abstract

Using novel survey evidence on consumer inflation expectations disaggregated by personal consumption expenditure (PCE) categories, we document the paradox that consumers' aggregate inflation expectations usually exceed any individual category expectation. We explore procedures for aggregating category inflation expectations, and find that the inconsistency between aggregate and aggregated inflation expectations rises with subjective uncertainty and is systematically related to socioeconomic characteristics. Overall, our results are inconsistent with the notion that consumers' aggregate inflation expectations comprise an expenditure-weighted sum of category beliefs. Moreover, aggregated inflation expectations explain a greater share of planned consumer spending than aggregate inflation expectations.

Suggested Citation

  • Alexander Dietrich & Edward S. Knotek & Kristian Ove R. Myrseth & Robert W. Rich & Raphael Schoenle & Michael Weber, 2022. "Greater Than the Sum of the Parts: Aggregate vs. Aggregated Inflation Expectations," Working Papers 22-20, Federal Reserve Bank of Cleveland.
  • Handle: RePEc:fip:fedcwq:94364
    DOI: 10.26509/frbc-wp-202220
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    References listed on IDEAS

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    More about this item

    Keywords

    Household expectations; Survey; Sectoral expectations; Inflation expectations;
    All these keywords.

    JEL classification:

    • C83 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Survey Methods; Sampling Methods
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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