IDEAS home Printed from https://ideas.repec.org/p/zbw/imfswp/168.html
   My bibliography  Save this paper

How to limit the spillover from an inflation surge to inflation expectations

Author

Listed:
  • Dräger, Lena
  • Lamla, Michael
  • Pfajfar, Damjan

Abstract

We study the effects of forward looking communication in an environment of rising inflation rates on German consumers' inflation expectations using a randomized control trial. We show that information about rising inflation increases short- and long-term inflation expectations. This initial increase in expectations can be mitigated using forward looking information about inflation. Among these information treatments, professional forecasters' projections seems to reduce inflation expectations by more than policymaker's characterization of inflation as a temporary phenomenon.

Suggested Citation

  • Dräger, Lena & Lamla, Michael & Pfajfar, Damjan, 2022. "How to limit the spillover from an inflation surge to inflation expectations," IMFS Working Paper Series 168, Goethe University Frankfurt, Institute for Monetary and Financial Stability (IMFS).
    • Handle: RePEc:zbw:imfswp:168
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/261484/1/1810691060.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Olivier Armantier & Scott Nelson & Giorgio Topa & Wilbert van der Klaauw & Basit Zafar, 2016. "The Price Is Right: Updating Inflation Expectations in a Randomized Price Information Experiment," The Review of Economics and Statistics, MIT Press, vol. 98(3), pages 503-523, July.
    2. Olivier Coibion & Dimitris Georgarakos & Yuriy Gorodnichenko & Michael Weber, 2023. "Forward Guidance and Household Expectations," Journal of the European Economic Association, European Economic Association, vol. 21(5), pages 2131-2171.
    3. Olivier Coibion & Yuriy Gorodnichenko & Saten Kumar, 2018. "How Do Firms Form Their Expectations? New Survey Evidence," American Economic Review, American Economic Association, vol. 108(9), pages 2671-2713, September.
    4. Francesco D'Acunto & Ulrike M. Malmendier & Michael Weber & Michael Weber, 2022. "What Do the Data Tell Us about Inflation Expectations?," CESifo Working Paper Series 9602, CESifo.
    5. Pfajfar, Damjan & Santoro, Emiliano, 2010. "Heterogeneity, learning and information stickiness in inflation expectations," Journal of Economic Behavior & Organization, Elsevier, vol. 75(3), pages 426-444, September.
    6. 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.
    7. Olivier Coibion & Yuriy Gorodnichenko & Tiziano Ropele, 2020. "Inflation Expectations and Firm Decisions: New Causal Evidence," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 135(1), pages 165-219.
    8. Olivier Armantier & Wändi Bruine de Bruin & Giorgio Topa & Wilbert van der Klaauw & Basit Zafar, 2015. "Inflation Expectations And Behavior: Do Survey Respondents Act On Their Beliefs?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 56(2), pages 505-536, May.
    9. Alberto Cavallo & Guillermo Cruces & Ricardo Perez-Truglia, 2017. "Inflation Expectations, Learning, and Supermarket Prices: Evidence from Survey Experiments," American Economic Journal: Macroeconomics, American Economic Association, vol. 9(3), pages 1-35, July.
    10. Peter J. Klenow & Oleksiy Kryvtsov, 2008. "State-Dependent or Time-Dependent Pricing: Does it Matter for Recent U.S. Inflation?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(3), pages 863-904.
    11. Andrade, Philippe & Gautier, Erwan & Mengus, Eric, 2023. "What matters in households’ inflation expectations?," Journal of Monetary Economics, Elsevier, vol. 138(C), pages 50-68.
    12. José Luis Montiel Olea & Carolin Pflueger, 2013. "A Robust Test for Weak Instruments," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 31(3), pages 358-369, July.
    13. Pfajfar, Damjan & Žakelj, Blaž, 2014. "Experimental evidence on inflation expectation formation," Journal of Economic Dynamics and Control, Elsevier, vol. 44(C), pages 147-168.
    14. 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.
    15. Hoffmann, Mathias & Moench, Emanuel & Pavlova, Lora & Schultefrankenfeld, Guido, 2022. "Would households understand average inflation targeting?," Journal of Monetary Economics, Elsevier, vol. 129(S), pages 52-66.
    16. Gwangmin Kim & Carola Binder, 2023. "Learning-through-Survey in Inflation Expectations," American Economic Journal: Macroeconomics, American Economic Association, vol. 15(2), pages 254-278, April.
    17. Lamla, Michael J. & Vinogradov, Dmitri V., 2019. "Central bank announcements: Big news for little people?," Journal of Monetary Economics, Elsevier, vol. 108(C), pages 21-38.
    18. Saten Kumar & Yuriy Gorodnichenko & Olivier Coibion, 2023. "The Effect of Macroeconomic Uncertainty on Firm Decisions," Econometrica, Econometric Society, vol. 91(4), pages 1297-1332, July.
    19. Coibion, Olivier & Gorodnichenko, Yuriy & Kumar, Saten & Pedemonte, Mathieu, 2020. "Inflation expectations as a policy tool?," Journal of International Economics, Elsevier, vol. 124(C).
    20. Olivier Armantier & Wändi Bruine de Bruin & Giorgio Topa & Wilbert Klaauw & Basit Zafar, 2015. "Inflation Expectations And Behavior: Do Survey Respondents Act On Their Beliefs?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 56, pages 505-536, May.
    21. Andrew Haldane & Michael McMahon, 2018. "Central Bank Communications and the General Public," AEA Papers and Proceedings, American Economic Association, vol. 108, pages 578-583, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Lena Dräger & Michael J. Lamla, 2024. "Consumers' macroeconomic expectations," Journal of Economic Surveys, Wiley Blackwell, vol. 38(2), pages 427-451, April.
    2. Dräger, Lena, 2023. "Central Bank Communication with the General Public," Hannover Economic Papers (HEP) dp-713, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    3. Dräger, Lena & Nghiem, Giang, 2023. "Inflation Literacy, Inflation Expectations, and Trust in the Central Bank: A Survey Experiment," Hannover Economic Papers (HEP) dp-709, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    4. Baumann, Ursel & Ferrando, Annalisa & Georgarakos, Dimitris & Gorodnichenko, Yuriy & Reinelt, Timo, 2024. "SAFE to Update Inflation Expectations? New Survey Evidence on Euro Area Firms," CEPR Discussion Papers 19161, C.E.P.R. Discussion Papers.
    5. Afunts, Geghetsik & Cato, Misina & Schmidt, Tobias, 2023. "Inflation Expectations in the Wake of the War in Ukraine," VfS Annual Conference 2023 (Regensburg): Growth and the "sociale Frage" 277577, Verein für Socialpolitik / German Economic Association.
    6. Lena Dräger & Klaus Gründler & Niklas Potrafke, 2022. "Political Shocks and Inflation Expectations: Evidence from the 2022 Russian Invasion of Ukraine," ifo Working Paper Series 371, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Lena Dräger & Michael J. Lamla, 2024. "Consumers' macroeconomic expectations," Journal of Economic Surveys, Wiley Blackwell, vol. 38(2), pages 427-451, April.
    2. Andrade, Philippe & Gautier, Erwan & Mengus, Eric, 2023. "What matters in households’ inflation expectations?," Journal of Monetary Economics, Elsevier, vol. 138(C), pages 50-68.
    3. Michael Weber & Francesco D'Acunto & Yuriy Gorodnichenko & Olivier Coibion, 2022. "The Subjective Inflation Expectations of Households and Firms: Measurement, Determinants, and Implications," Journal of Economic Perspectives, American Economic Association, vol. 36(3), pages 157-184, Summer.
    4. Lena Dräger, 2023. "Central Bank Communication with the General Public," CESifo Working Paper Series 10713, CESifo.
    5. Weber, Michael & Candia, Bernardo & Ropele, Tiziano & Lluberas, Rodrigo & Frache, Serafin & Meyer, Brent & Kumar, Saten & Gorodnichenko, Yuriy & Georgarakos, Dimitris & Coibion, Olivier & Kenny, Geoff, 2023. "Tell Me Something I don't Already Know: Learning in Low and High-inflation Settings," CEPR Discussion Papers 18299, C.E.P.R. Discussion Papers.
    6. Bernardo Candia & Olivier Coibion & Yuriy Gorodnichenko, 2020. "Communication and the Beliefs of Economic Agents," NBER Working Papers 27800, National Bureau of Economic Research, Inc.
    7. Lena Dräger & Klaus Gründler & Niklas Potrafke, 2022. "Political Shocks and Inflation Expectations: Evidence from the 2022 Russian Invasion of Ukraine," ifo Working Paper Series 371, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    8. Coibion, Olivier & Gorodnichenko, Yuriy & Kumar, Saten & Pedemonte, Mathieu, 2020. "Inflation expectations as a policy tool?," Journal of International Economics, Elsevier, vol. 124(C).
    9. Peter Andrebriq & Carlo Pizzinelli & Christopher Roth & Johannes Wohlfart, 2022. "Subjective Models of the Macroeconomy: Evidence From Experts and Representative Samples," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 89(6), pages 2958-2991.
    10. Alan S. Blinder & Michael Ehrmann & Jakob de Haan & David-Jan Jansen, 2024. "Central Bank Communication with the General Public: Promise or False Hope?," Journal of Economic Literature, American Economic Association, vol. 62(2), pages 425-457, June.
    11. Cars Hommes & Julien Pinter & Isabelle Salle, 2023. "What People Believe about Monetary Finance and What We Can(‘t) Do about It: Evidence from a Large-Scale, Multi-Country Survey Experiment," CESifo Working Paper Series 10574, CESifo.
    12. Olivier Coibion & Yuriy Gorodnichenko & Michael Weber, 2022. "Does Policy Communication during COVID Work?," International Journal of Central Banking, International Journal of Central Banking, vol. 18(1), pages 3-39, March.
    13. Olivier Coibion & Dimitris Georgarakos & Yuriy Gorodnichenko & Michael Weber, 2023. "Forward Guidance and Household Expectations," Journal of the European Economic Association, European Economic Association, vol. 21(5), pages 2131-2171.
    14. Candia, Bernardo & Coibion, Olivier & Gorodnichenko, Yuriy, 2024. "The inflation expectations of U.S. firms: Evidence from a new survey," Journal of Monetary Economics, Elsevier, vol. 145(S).
    15. Beutel, Johannes & Metiu, Norbert & Stockerl, Valentin, 2021. "Toothless tiger with claws? Financial stability communication, expectations, and risk-taking," Journal of Monetary Economics, Elsevier, vol. 120(C), pages 53-69.
    16. Martha Elena Delgado & Juan Herreño & Marc Hofstetter & Mathieu Pedemonte, 2024. "The Causal Effects of Expected Depreciations," Working Papers 24-07, Federal Reserve Bank of Cleveland.
    17. Bholat, David & Broughton, Nida & Ter Meer, Janna & Walczak, Eryk, 2019. "Enhancing central bank communications using simple and relatable information," Journal of Monetary Economics, Elsevier, vol. 108(C), pages 1-15.
    18. Francesco D’Acunto & Ulrike Malmendier & Michael Weber, 2022. "What Do the Data Tell Us About Inflation Expectations?," NBER Working Papers 29825, National Bureau of Economic Research, Inc.
    19. Agarwal, Sumit & Chua, Yeow Hwee & Song, Changcheng, 2022. "Inflation expectations of households and the upgrading channel," Journal of Monetary Economics, Elsevier, vol. 128(C), pages 124-138.
    20. Damjan Pfajfar & Fabian Winkler, 2024. "Households' Preferences Over Inflation and Monetary Policy Tradeoffs," Finance and Economics Discussion Series 2024-036, Board of Governors of the Federal Reserve System (U.S.).

    More about this item

    Keywords

    short-run and long-run inflation expectations; inflation surge; randomized control trial; survey experiment; persistent or transitory inflation shock;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

    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:zbw:imfswp:168. See general information about how to correct material in RePEc.

    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 bibliographic 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/hoffmde.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.