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Author: Cristina Angelico Publisher: ISBN: Category : Languages : en Pages : 52
Book Description
Poor households report significantly higher inflation expectations than rich households. We assess, both theoretically and empirically, whether these differences are due to the recall of different shopping experiences and of information about aggregate inflation. Using data on shopping experiences, we show that the inflation expectations of each income group depend on the group's past grocery experiences as well as on past aggregate inflation. To explain this finding, we build a psychologically founded model in which consumers observe prices while shopping and listen to news about the general level of inflation, and - when predicting future inflation - they selectively recall the most frequent and salient memories. The model predicts that inflation expectations overweight frequent and salient memories, which leads to predictable errors in forecasting future inflation. We confirm these predictions in our data and show that our model accounts for the bulk of expectation differences across income groups.
Author: Cristina Angelico Publisher: ISBN: Category : Languages : en Pages : 52
Book Description
Poor households report significantly higher inflation expectations than rich households. We assess, both theoretically and empirically, whether these differences are due to the recall of different shopping experiences and of information about aggregate inflation. Using data on shopping experiences, we show that the inflation expectations of each income group depend on the group's past grocery experiences as well as on past aggregate inflation. To explain this finding, we build a psychologically founded model in which consumers observe prices while shopping and listen to news about the general level of inflation, and - when predicting future inflation - they selectively recall the most frequent and salient memories. The model predicts that inflation expectations overweight frequent and salient memories, which leads to predictable errors in forecasting future inflation. We confirm these predictions in our data and show that our model accounts for the bulk of expectation differences across income groups.
Author: Peter J. N. Sinclair Publisher: Routledge ISBN: 1135179778 Category : Business & Economics Languages : en Pages : 402
Book Description
Inflation is regarded by the many as a menace that damages business and can only make life worse for households. Keeping it low depends critically on ensuring that firms and workers expect it to be low. So expectations of inflation are a key influence on national economic welfare. This collection pulls together a galaxy of world experts (including Roy Batchelor, Richard Curtin and Staffan Linden) on inflation expectations to debate different aspects of the issues involved. The main focus of the volume is on likely inflation developments. A number of factors have led practitioners and academic observers of monetary policy to place increasing emphasis recently on inflation expectations. One is the spread of inflation targeting, invented in New Zealand over 15 years ago, but now encompassing many important economies including Brazil, Canada, Israel and Great Britain. Even more significantly, the European Central Bank, the Bank of Japan and the United States Federal Bank are the leading members of another group of monetary institutions all considering or implementing moves in the same direction. A second is the large reduction in actual inflation that has been observed in most countries over the past decade or so. These considerations underscore the critical – and largely underrecognized - importance of inflation expectations. They emphasize the importance of the issues, and the great need for a volume that offers a clear, systematic treatment of them. This book, under the steely editorship of Peter Sinclair, should prove very important for policy makers and monetary economists alike.
Author: Lena Dräger Publisher: ISBN: Category : Languages : en Pages :
Book Description
Using a new consumer survey dataset, we document a new dimension of heterogeneity in inflation expectations that has implications for consumption and saving decisions as well as monetary policy transmission. We show that German households with the same inflation expectations differently assess whether the level of expected inflation and of nominal interest rates is appropriate or too high/too low. The 'hidden heterogeneity' in expectations stemming from these opinions is related to demographic characteristics and affects current and planned spending in addition to the Euler equation effect of the perceived real interest rate. Furthermore, these differences in opinions affect German households differently depending on whether they are renters or homeowners.
Author: Charles Bellemare Publisher: ISBN: Category : Consumers Languages : en Pages : 36
Book Description
'We propose and estimate a dynamic and individual model of expectations formation that links individual consumers' inflation expectations to their own lagged forecasts as well as proxies for the rational expectation forecasts. The model builds on the existing rational inattention literature and extends it in several dimensions. We explicitly model the expectations updating rule which consumers use to incorporate new information in their experience and take seriously heterogeneity in inflation expectations extensively documented in the literature. We estimate the model using data from two important new surveys -- the Federal Reserve Bank of New York's Survey of Consumer Expectations and the Bank of Canada's Canadian Survey of Consumer Expectations. We find that inflation expectations appear to correlate more strongly to measures of rational expectations forecasts in Canada than in the US, and conversely less to lagged expectations. More specifically, the median respondent assigns overall weights of roughly 75% to proxies for the rational expectation forecasts and 25% to lagged expectations in Canada, while these weights are around 50-50 for the US. We show that these differences in weights are not explained by differences in the characteristics of their stand-in consumers. Given this finding, one candidate explanation could be related to the explicit inflation target in Canada in comparison to the dual mandate in the US'--Abstract, page ii.
Author: Gustavo Rojas-Matute Publisher: ISBN: Category : Business enterprises Languages : en Pages : 95
Book Description
How firms set their prices is of special importance in macroeconomics and, in particular, for monetary policy. This dissertation investigates price-setting behavior from two different perspectives and two different environments, from low inflation to hyperinflation.In Chapter 1, I point out that firms seem to pay more attention to GDP growth rates in economies with well-anchored inflation expectations than CPI inflation. I study how this heterogeneity affects price-setting behavior. I analyze three types of firms: those that only track GDP, those that only track CPI, and those that track both. The findings can be summarized as follows: (i) both GDP growth rate and CPI inflation expectations affect price-setting behavior but in opposite directions; (ii) the impact of long-run inflation expectations on price-setting behavior is more substantial than short-run expectations; (iii) in the presence of adjustment costs, the frequency of price changes of those firms that only track GDP growth rate is highly correlated with the series estimated by Nakamura et al., (2018) with data provided by the Bureau of Labor Statistics (BLS); (iv) in the short run, the output response to a monetary shock is larger while the price response is smaller in those firms that only track GDP growth rate than in those firms that only update CPI; (v) adjustment costs amplify monetary non-neutrality in only-GDP firms. If the aggregate effect is driven by ``only-GDP" firms, as suggested in (iii), the results are consistent with recent findings suggesting that the Phillips curve is flat (Del Negro et al., 2020, Hazell et al., 2020).In Chapter 2, I take advantage of a ``natural experiment" to study the impact of the lack of official information on price-setting behavior. In particular, I study a case between December 2015 and May 2019, when the Central Bank of Venezuela stopped releasing official economic statistics, including inflation rate, GDP, and balance of payments. Using a combination of data sets from the Billion Prices Project, I find that the lack of official information increases the size of price changes (intensive margin), leading the intensive margin to be the main driver of the variance of the inflation. The empirical results are confirmed with the calibration of a price-setting behavior model. The model suggests that the turning point occurred when the Central Bank started delaying the publications (2012-2014) before deciding to stop them entirely in 2015. These findings are groundbreaking because they occur in a context of hyperinflation where prices change very frequently and differ from the most recent literature that has shown that the extensive margin contributes the most during high inflation and hyperinflation (Alvarez et al., 2019, Gagnon, 2009). The evidence also suggests that, despite the surge of different non-official inflation indicators publicly available, firms rely on private sources.
Author: Cristina Angelico
Author: Cristina Angelico
Author: Carlos Madeira
Author: Mathieu O. Pedemonte
Author: Peter J. N. Sinclair
Author: Lena Dräger
Author: Jaylson Jair da Silveira
Author: Charles Bellemare
Author: Alistair Macaulay
Author: Gustavo Rojas-Matute
Author: Gilberto Tadeu Lima