Working Paper: CEPR ID: DP16758
Authors: Peter Andre; Ingar Haaland; Christopher Roth; Johannes Wohlfart
Abstract: We provide evidence on the stories that people tell to explain a historically notable rise in inflation using samples of experts, U.S. households, and managers. We document substantial heterogeneity in narratives about the drivers of higher inflation rates. Experts put more emphasis on demand-side factors, such as fiscal and monetary policy, and on supply chain disruptions. Other supply-side factors, such as labor shortages or increased energy costs, are equally prominent across samples. Households and managers are more likely to tell generic stories relatedto the pandemic or mismanagement by the government. We also find that households and managers expect the increase in inflation to be more persistent than experts. Moreover, narratives about the drivers of the inflation increase are strongly correlated with beliefs about its persistence. Our findings have implications for understanding macroeconomic expectation formation.
Keywords: narratives; inflation; beliefs; macroeconomics; fiscal policy; monetary policy
JEL Codes: D83; D84; E31; E52; E71
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| narratives held by households and managers (D14) | expectations about the persistence of inflation (D84) |
| narratives mentioning energy shortages or government mismanagement (P18) | higher inflation expectations (E31) |
| using multiple narratives (Z00) | higher persistence of inflation expectations (E31) |