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Imperfect Information and Inflation Expectations: Evidence from Microdata

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  • Lena Dräger

    (Universität Hamburg (University of Hamburg))

  • Michael Lamla

    (KOF Swiss Economic Institute, ETH Zurich)

Abstract

We investigate the updating behavior of individual consumers regarding their shortand long-run inflation expectations. Utilizing the University of Michigan Survey of Consumer’s rotating panel microstructure, we can identify whether individuals adjust their inflation expectations over a period of six months. We find evidence that the updating frequency has been underestimated. Furthermore, looking at the possible determinants of an update we find support for imperfect information models. Moreover, individual expectations are found to be more accurate after an update and forecast accuracy is affected by inflation volatility measures and news regarding inflation. Finally, the updating frequency is found to significantly move spreads in bond markets.

Suggested Citation

  • Lena Dräger & Michael Lamla, 2013. "Imperfect Information and Inflation Expectations: Evidence from Microdata," Macroeconomics and Finance Series 201301, University of Hamburg, Department of Socioeconomics.
    • Handle: RePEc:hep:macppr:201301
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    Cited by:

    1. Waldyr D Areosa, 2016. "What drives inflation expectations in Brazil? Public versus private information," BIS Working Papers 544, Bank for International Settlements.
    2. Ueno, Yuko, 2014. "Updating Behavior of Inflation Expectations: Evidence from Japanese Household Panel Data," CIS Discussion paper series 617, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.
    3. Lena Dräger & Ulrich Fritsche, 2013. "Don't Worry, Be Right! Survey Wording Effects on In flation Perceptions and Expectations," Macroeconomics and Finance Series 201308, University of Hamburg, Department of Socioeconomics.

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    More about this item

    Keywords

    Rational Inattention; updating inflation expectations; microdata; news;
    All these keywords.

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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