Working Paper: CEPR ID: DP18684
Authors: Isabelle Salle; Yuriy Gorodnichenko; Olivier Coibion
Abstract: We study how individuals’ memories of inflation shape their expectations about future inflation using both surveys and laboratory experiments. Recalling having lived through prior disinflations has pronounced effects on how long-lived people expect the current inflation episode to last. Information treatments in which we show people prior disinflationary experiences similarly strongly reduce inflation expectations of individuals on average and are often recalled as inflation memories months later. We also show that when people try to forecast inflation in the lab, the inflation dynamics in the game can affect their beliefs much like the inflation experienced in real life. Methodologically, we compare and contrast surveys and lab experiments and discuss the pros and cons of each method, emphasizing the general consistency across the two methodologies.
Keywords: inflation; expectations; experiment; survey data; randomized field experiment
JEL Codes: E3; E4; E5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| recalled disinflation experiences (E31) | inflation expectations (E31) |
| memories of inflation surges (E31) | inflation expectations (E31) |
| larger disinflation memories (E31) | lower inflation forecasts (E31) |
| lifetime inflation experiences (E31) | beliefs about future inflation (E31) |
| actual lived experiences (C90) | economic expectations (D84) |