Working Paper: CEPR ID: DP17406
Authors: Michael Weber; Francesco D'Acunto; Yuriy Gorodnichenko; Olivier Coibion
Abstract: Households’ and firms’ subjective inflation expectations play a central role in macroeconomic and intertemporal microeconomic models. We discuss how subjective inflation expectations are measured, the patterns they display, their determinants, and how they shape households’ and firms’ economic choices in the data and help us make sense of the observed heterogeneous reactions to business-cycle shocks and policy interventions. We conclude by highlighting the relevant open questions and why tackling them is important for academic research and policy making.
Keywords: Macroeconomics; Intertemporal Choice; Consumption; Savings; Surveys; Monetary Policy; Fiscal Policy; Experiments; Financial Decision-Making; Cognition; Communication
JEL Codes: D1; D2; D8; D9; E2; E3; E4; E5; E7; J1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increased current consumption (E21) | Increased consumer spending (D12) |
| Subjective uncertainty about inflation (D89) | Shaping consumption and investment decisions (E21) |
| Inflation expectations (E31) | Firms adjust pricing and investment decisions (L11) |
| Higher inflation expectations (E31) | Increased consumer spending (D12) |
| Demographic differences in inflation expectations (J19) | Confounding in analyses (C38) |
| Households' expectations of higher future inflation (D19) | Increased current consumption (E21) |
| Changes in inflation expectations (E31) | Impact consumption choices (F61) |