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Measuring Inflation Expectations: Consumers' Heterogeneity and Nonlinearity

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  • Abe, Naohito
  • Ueno, Yuko

Abstract

Using the results of detailed random experiments, we find clear evidence of the effects of information provision on consumers’ inflation expectations. The responses of expectations to new information are nonlinear, including those of a sizable share of individuals who do not change their expectations. We document that the updates of consumers are quite heterogeneous, leading to a varied extent of revisions in the face of new information. One possible interpretation is the heterogeneity in consumers’ knowledge of inflation-related issues, as well as the difference in the content of the information. Consumers learn and update their expectations vis-à-vis future inflation based on new information, through a mechanism that is more complex than a simple learning model.

Suggested Citation

  • Abe, Naohito & Ueno, Yuko, 2015. "Measuring Inflation Expectations: Consumers' Heterogeneity and Nonlinearity," RCESR Discussion Paper Series DP15-5, Research Center for Economic and Social Risks, Institute of Economic Research, Hitotsubashi University.
  • Handle: RePEc:hit:rcesrs:dp15-5
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    File URL: http://hermes-ir.lib.hit-u.ac.jp/rs/bitstream/10086/27308/1/dp15-5.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Inflation expectations; Information; Heterogeneous updating; Nonlinearity; Survey experiments;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

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