IDEAS home Printed from https://ideas.repec.org/p/rco/dpaper/160.html
   My bibliography  Save this paper

Economic Uncertainty and Subjective Inflation Expectations

Author

Listed:
  • Rossmann, Tobias

    (LMU Munich)

Abstract

Measuring economic uncertainty is crucial for understanding investment decisions by individuals and firms. Macroeconomists increasingly rely on survey data on subjective expectations. An innovative approach to measure aggregate uncertainty exploits the rounding patterns in individuals\' responses to survey questions on inflation expectations (Binder, 2017). This paper uses the panel dimension of household surveys to study individual-level heterogeneity in this measure of individual uncertainty. The results provide evidence for the existence of considerable heterogeneity in individuals\' response behavior and inflation expectations.

Suggested Citation

  • Rossmann, Tobias, 2019. "Economic Uncertainty and Subjective Inflation Expectations," Rationality and Competition Discussion Paper Series 160, CRC TRR 190 Rationality and Competition.
  • Handle: RePEc:rco:dpaper:160
    as

    Download full text from publisher

    File URL: https://rationality-and-competition.de/wp-content/uploads/discussion_paper/160.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. John Ameriks & Gábor Kézdi & Minjoon Lee & Matthew D. Shapiro, 2020. "Heterogeneity in Expectations, Risk Tolerance, and Household Stock Shares: The Attenuation Puzzle," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 38(3), pages 633-646, July.
    2. Ulrike Malmendier & Stefan Nagel & Zhen Yan, 2017. "The Making of Hawks and Doves: Inflation Experiences on the FOMC," NBER Working Papers 23228, National Bureau of Economic Research, Inc.
    3. Charles F. Manski, 2018. "Survey Measurement of Probabilistic Macroeconomic Expectations: Progress and Promise," NBER Macroeconomics Annual, University of Chicago Press, vol. 32(1), pages 411-471.
    4. van Rooij, Maarten & Lusardi, Annamaria & Alessie, Rob, 2011. "Financial literacy and stock market participation," Journal of Financial Economics, Elsevier, vol. 101(2), pages 449-472, August.
    5. Kyle Jurado & Sydney C. Ludvigson & Serena Ng, 2015. "Measuring Uncertainty," American Economic Review, American Economic Association, vol. 105(3), pages 1177-1216, March.
    6. Nicholas Bloom, 2009. "The Impact of Uncertainty Shocks," Econometrica, Econometric Society, vol. 77(3), pages 623-685, May.
    7. Charles F. Manski, 2004. "Measuring Expectations," Econometrica, Econometric Society, vol. 72(5), pages 1329-1376, September.
    8. Heiss, Florian & Hurd, Michael & Rossmann, Tobias & Winter, Joachim & van Rooij, Maarten, 2019. "Dynamics and Heterogeneity of Subjective Stock Market Expectations," Rationality and Competition Discussion Paper Series 157, CRC TRR 190 Rationality and Competition.
    9. Barbara Rossi & Tatevik Sekhposyan, 2015. "Macroeconomic Uncertainty Indices Based on Nowcast and Forecast Error Distributions," American Economic Review, American Economic Association, vol. 105(5), pages 650-655, May.
    10. Olivier Armantier & Wändi Bruine de Bruin & Simon Potter & Giorgio Topa & Wilbert van der Klaauw & Basit Zafar, 2013. "Measuring Inflation Expectations," Annual Review of Economics, Annual Reviews, vol. 5(1), pages 273-301, May.
    11. Kristin J. Kleinjans & Arthur Van Soest, 2014. "Rounding, Focal Point Answers And Nonresponse To Subjective Probability Questions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 29(4), pages 567-585, June.
    12. Muriel Niederle & Lise Vesterlund, 2007. "Do Women Shy Away From Competition? Do Men Compete Too Much?," The Quarterly Journal of Economics, Oxford University Press, vol. 122(3), pages 1067-1101.
    13. Scott R. Baker & Nicholas Bloom & Steven J. Davis, 2016. "Measuring Economic Policy Uncertainty," The Quarterly Journal of Economics, Oxford University Press, vol. 131(4), pages 1593-1636.
    14. 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.
    15. Train,Kenneth E., 2009. "Discrete Choice Methods with Simulation," Cambridge Books, Cambridge University Press, number 9780521747387.
    16. Ranyard, Rob & Missier, Fabio Del & Bonini, Nicolao & Duxbury, Darren & Summers, Barbara, 2008. "Perceptions and expectations of price changes and inflation: A review and conceptual framework," Journal of Economic Psychology, Elsevier, vol. 29(4), pages 378-400, August.
    17. Olivier Blanchard & Giovanni Dell’Ariccia & Paolo Mauro, 2010. "Rethinking Macroeconomic Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(s1), pages 199-215, September.
    18. David G. Blanchflower & Conall MacCoille, 2009. "The formation of inflation expectations: an empirical analysis for the UK," NBER Working Papers 15388, National Bureau of Economic Research, Inc.
    19. R?diger Bachmann & Steffen Elstner & Eric R. Sims, 2013. "Uncertainty and Economic Activity: Evidence from Business Survey Data," American Economic Journal: Macroeconomics, American Economic Association, vol. 5(2), pages 217-249, April.
    20. Ulrike Malmendier & Stefan Nagel, 2016. "Learning from Inflation Experiences," The Quarterly Journal of Economics, Oxford University Press, vol. 131(1), pages 53-87.
    21. Drerup, Tilman & Enke, Benjamin & von Gaudecker, Hans-Martin, 2017. "The precision of subjective data and the explanatory power of economic models," Journal of Econometrics, Elsevier, vol. 200(2), pages 378-389.
    22. David Revelt & Kenneth Train, 1998. "Mixed Logit With Repeated Choices: Households' Choices Of Appliance Efficiency Level," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 647-657, November.
    23. Péter Hudomiet & Gábor Kézdi & Robert J. Willis, 2011. "Stock market crash and expectations of American households," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 26(3), pages 393-415, April.
    24. Souleles, Nicholas S, 2004. "Expectations, Heterogeneous Forecast Errors, and Consumption: Micro Evidence from the Michigan Consumer Sentiment Surveys," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(1), pages 39-72, February.
    25. Binder, Carola C., 2017. "Measuring uncertainty based on rounding: New method and application to inflation expectations," Journal of Monetary Economics, Elsevier, vol. 90(C), pages 1-12.
    26. Michael D. Hurd, 2009. "Subjective Probabilities in Household Surveys," Annual Review of Economics, Annual Reviews, vol. 1(1), pages 543-564, May.
    27. Olivier Blanchard & Giovanni Dell'Ariccia & Paolo Mauro, 2010. "Rethinking Macroeconomic Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(s1), pages 199-215, September.
    28. Bruin, Wändi Bruine de & Olivier Armantier & Julie S. Downs & Baruch Fischhoff & Giorgio Topa & Wilbert Van der Klaauw, 2010. "The effect of question wording on reported expectations and perceptions of inflation," Staff Reports 443, Federal Reserve Bank of New York.
    29. Jonung, Lars, 1981. "Perceived and Expected Rates of Inflation in Sweden," American Economic Review, American Economic Association, vol. 71(5), pages 961-968, December.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    uncertainty; inflation; expectations; mixture models;

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:rco:dpaper:160. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Benjamin Langer). General contact details of provider: https://rationality-and-competition.de .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.