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Subjective inflation expectations of households

Subjective inflation expectations of households Inflation expectations of households and firms are central determinants in all dynamic macro models. Yet, empirical evidence suggests these decision makers form expectations in a way that deviates from the assumptions in these models: on average, inflation expectations are biased upwards, are substantially dispersed across individuals, and co-move strongly with the prices of selected goods such as milk or gas. In this article, I discuss several stylized facts on subjective inflation expectations, their determinants, and how inflation expectations shape individuals’ consumption, savings, and investment decisions. Finally, I review the recent literature on how central banks should communicate with the general public and highlight the role of the policy message, the messenger, and the medium, for the effectiveness of central bank communication. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Business Economics Springer Journals

Subjective inflation expectations of households

Weber, Michael
Business Economics , Volume 57 (4) – Oct 1, 2022
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References (22)

Publisher
Springer Journals
Copyright
Copyright © Crown 2022
ISSN
0007-666X
eISSN
1554-432X
DOI
10.1057/s11369-022-00295-y
Publisher site
See Article on Publisher Site

Abstract

Inflation expectations of households and firms are central determinants in all dynamic macro models. Yet, empirical evidence suggests these decision makers form expectations in a way that deviates from the assumptions in these models: on average, inflation expectations are biased upwards, are substantially dispersed across individuals, and co-move strongly with the prices of selected goods such as milk or gas. In this article, I discuss several stylized facts on subjective inflation expectations, their determinants, and how inflation expectations shape individuals’ consumption, savings, and investment decisions. Finally, I review the recent literature on how central banks should communicate with the general public and highlight the role of the policy message, the messenger, and the medium, for the effectiveness of central bank communication.

Journal

Business Economics – Springer Journals

Published: Oct 1, 2022

Keywords: Intertemporal choice; Consumption; Savings; Surveys; Monetary and Fiscal policy; D1; D2; D8; D9; E2; E3; E4; E5; E7; J1

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