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The Causal Effects of Inflation Expectations on Households' Beliefs and Actions

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  • Olivier Coibion
  • Yuriy Gorodnichenko

Abstract

We discuss how Randomized Control Trials (RCTs) can be used to study the causal effects of inflation expectations on the decisions of households. RCTs create exogenous variation in the inflation expectations of survey participants. When linked to either external information on their actions or subsequent survey waves that measure their ex-post decisions, this can provide clear causal identification of expectations on decisions. We review recent evidence using this strategy and discuss potential challenges associated with this approach.

Suggested Citation

  • Olivier Coibion & Yuriy Gorodnichenko, 2024. "The Causal Effects of Inflation Expectations on Households' Beliefs and Actions," RBA Annual Conference Papers acp2024-05, Reserve Bank of Australia, revised May 2025.
    • Handle: RePEc:rba:rbaacp:acp2024-05
    Note: Paper presented at the RBA's annual conference 'Central Bank Communications', Sydney, 14–15 October 2024.
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    File URL: https://www.rba.gov.au/publications/confs/2024/pdf/rba-conference-2024-coibion-gorodnichenko.pdf
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    References listed on IDEAS

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    1. Armantier, Olivier & Sbordone, Argia & Topa, Giorgio & van der Klaauw, Wilbert & Williams, John C., 2022. "A new approach to assess inflation expectations anchoring using strategic surveys," Journal of Monetary Economics, Elsevier, vol. 129(S), pages 82-101.
    2. Olivier Coibion & Dimitris Georgarakos & Yuriy Gorodnichenko & Maarten van Rooij, 2023. "How Does Consumption Respond to News about Inflation? Field Evidence from a Randomized Control Trial," American Economic Journal: Macroeconomics, American Economic Association, vol. 15(3), pages 109-152, July.
    3. Roberto Colarieti & Pierfrancesco Mei & Stefanie Stantcheva, 2024. "The How and Why of Household Reactions to Income Shocks," NBER Working Papers 32191, National Bureau of Economic Research, Inc.
    4. Joshua D. Angrist & Jörn-Steffen Pischke, 2009. "Mostly Harmless Econometrics: An Empiricist's Companion," Economics Books, Princeton University Press, edition 1, number 8769.
    5. Dimitris Georgarakos & Yuriy Gorodnichenko & Olivier Coibion & Geoff Kenny, 2024. "The Causal Effects of Inflation Uncertainty on Households' Beliefs and Actions," NBER Working Papers 33014, National Bureau of Economic Research, Inc.
    6. Wändi Bruine De Bruin & Charles F. Manski & Giorgio Topa & Wilbert van der Klaauw, 2011. "Measuring consumer uncertainty about future inflation," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 26(3), pages 454-478, April.
    7. Olivier Coibion & Yuriy Gorodnichenko & Michael Weber, 2022. "Monetary Policy Communications and Their Effects on Household Inflation Expectations," Journal of Political Economy, University of Chicago Press, vol. 130(6), pages 1537-1584.
    8. Iván Werning, 2022. "Expectations and the Rate of Inflation," NBER Working Papers 30260, National Bureau of Economic Research, Inc.
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