Working Paper: NBER ID: w25482
Authors: Olivier Coibion; Yuriy Gorodnichenko; Michael Weber
Abstract: We study how different forms of communication influence inflation expectations in a randomized controlled trial using nearly 20,000 U.S. individuals. We elicit individuals’ inflation expectations in the Nielsen Homescan panel and then provide eight different forms of information regarding inflation. Reading the actual Federal Open Market Committee (FOMC) statement has about the same average effect on expectations as simply being told about the Federal Reserve’s inflation target. Reading news articles about the most recent FOMC meetings results in a forecast revision which is smaller by half. This exogenous variation in inflation expectations has subsequent effects on household spending. Our results have implications for how central banks should communicate to the broader public.
Keywords: Monetary Policy; Inflation Expectations; Household Behavior; Central Bank Communication
JEL Codes: C83; D84; E31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Providing households with simple statistics about inflation (D12) | Statistically significant reduction in households' average inflation expectations (D12) |
| Simple statistics about inflation (E31) | Expectations converge more than halfway to those of the control group within three months (C92) |
| Higher inflation expectations (E31) | Increased household spending over the next six months (D12) |
| Reading the FOMC statement (E52) | Similar average effect on expectations as being informed about the inflation target (D84) |
| Reading news articles (Y50) | Forecast revision that is only half as large (E17) |
| Treatment involving a news article from USA Today (I10) | Much smaller effect on inflation expectations compared to other treatments (E31) |