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The formation of inflation expectations: an empirical analysis for the UK

Author Info

  • David G. Blanchflower
  • Conall MacCoille

Abstract

This paper uses micro-data from three surveys for the UK to consider how individuals form inflation expectations. Generally, we find significant non-response bias in all surveys, with non-respondents especially likely to be young, female, less educated and with lower incomes. A number of demographic generalizations can be made based on the surveys. Inflation expectations rise with age, but the more highly educated and home owners tend to have lower inflation expectations. These groups are also more likely to be accurate in their estimates of official inflation twelve months ahead, and have less backward-looking expectations.

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File URL: http://www.nber.org/papers/w15388.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15388.

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Date of creation: Sep 2009
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Handle: RePEc:nbr:nberwo:15388
Note: ME
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Find related papers by JEL classification:

  • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
  • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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  2. Hasan Bakhshi & Anthony Yates, 1998. "Are UK inflation expectations rational?," Bank of England working papers 81, Bank of England.
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  13. Mitchell, James & Weale, Martin R., 2007. "The rationality and reliability of expectations reported by British households: micro evidence from the British household panel survey," Discussion Paper Series 1: Economic Studies 2007,19, Deutsche Bundesbank, Research Centre.
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Cited by:

  1. Gilberto Tadeu Lima & Mark Setterfield, Jaylson Jair da Silveira, 2013. "Inflation Targeting and Macroeconomic Stability with Heterogeneous Inflation Expectations," Working Papers, Department of Economics 2013_11, University of São Paulo (FEA-USP).
  2. Jaylson Jair da Silveira & Gilberto Tadeu Lima, 2014. "Heterogeneity in Inflation Expectations and Macroeconomic Stability under Satisficing Learning," Working Papers, Department of Economics 2014_28, University of São Paulo (FEA-USP).
  3. Wändi Bruine de Bruin & Wilbert Van der Klaauw & Giorgio Topa, 2011. "Expectations of inflation: the biasing effect of thoughts about specific prices," Staff Reports 489, Federal Reserve Bank of New York.
  4. Lena Dräger & Ulrich Fritsche, 2013. "Don't Worry, Be Right! Survey Wording Effects on In flation Perceptions and Expectations," Macroeconomics and Finance Series 201308, Hamburg University, Department Wirtschaft und Politik.
  5. Easaw, Joshy & Golinelli, Roberto & Malgarini, Marco, 2013. "What determines households inflation expectations? Theory and evidence from a household survey," European Economic Review, Elsevier, vol. 61(C), pages 1-13.
  6. Patrick A. Imam, 2015. "Shock from Graying: Is the Demographic Shift Weakening Monetary Policy Effectiveness," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 20(2), pages 138-154, 03.
  7. Ehrmann, Michael & Soudan, Michel & Stracca, Livio, 2012. "Explaining EU citizens’ trust in the ECB in normal and crisis times," Working Paper Series 1501, European Central Bank.
  8. 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.
  9. Michael Debabrata Patra & Partha Ray, 2010. "Inflation Expectations and Monetary Policy in India; An Empirical Exploration," IMF Working Papers 10/84, International Monetary Fund.
  10. Menz, Jan-Oliver & Poppitz, Philipp, 2013. "Households' disagreement on inflation expectations and socioeconomic media exposure in Germany," Discussion Papers 27/2013, Deutsche Bundesbank, Research Centre.
  11. Georganas, Sotiris & Healy, Paul J. & Li, Nan, 2014. "Frequency bias in consumers׳ perceptions of inflation: An experimental study," European Economic Review, Elsevier, vol. 67(C), pages 144-158.
  12. Simon Richards & Matthieu Verstraete, 2016. "Understanding Firms' Inflation Expectations Using the Bank of Canada's Business Outlook Survey," Staff Working Papers 16-7, Bank of Canada.

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