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The Hidden Heterogeneity of Inflation and Interest Rate Expectations: The Role of Preferences

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  • Dräger, Lena
  • Lamla, Michael J.
  • Pfajfar, Damjan

Abstract

Using a new consumer survey dataset, we study the role of macroeconomic preferences for expectations and economic decisions. While household expectations are inversely related to preferences, households with the same inflation expectations can differently assess whether the level of expected inflation and of nominal interest rates is appropriate or too high/too low. This `hidden heterogeneity' in expectations is correlated with sociodemographic characteristics and affects current and planned spending via the intertemporal elasticity of substitution. We also show that the variation in preferences can be explained with risk preferences. Overall, this adds a new dimension to the definition of anchored expectations.

Suggested Citation

  • Dräger, Lena & Lamla, Michael J. & Pfajfar, Damjan, 2020. "The Hidden Heterogeneity of Inflation and Interest Rate Expectations: The Role of Preferences," Hannover Economic Papers (HEP) dp-666, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät, revised Jun 2021.
  • Handle: RePEc:han:dpaper:dp-666
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    Cited by:

    1. Gabriele Galati & Richhild Moessner & Maarten van Rooij, 2020. "The anchoring of long-term inflation expectations of consumers: insights from a new survey," DNB Working Papers 688, Netherlands Central Bank, Research Department.

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    More about this item

    Keywords

    Macroeconomic expectations; monetary policy perceptions; inflation and interest rate preferences; risk preferences; survey microdata;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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