Working Paper: NBER ID: w31822
Authors: Alexander Dietrich; Edward S. Knotek II; Kristian O. Myrseth; Robert W. Rich; Raphael Schoenle; Michael Weber
Abstract: This paper introduces a novel measure of consumer inflation expectations: We elicit and combine inflation forecasts across categories of personal consumption expenditure to form an aggregated measure of inflation expectations. Drawing on nearly 60,000 respondents, our data comprise the early low-inflation environment of the COVID pandemic and the 2021 inflation surge. Conventionally elicited inflation expectations consistently exceed aggregated measures constructed under plausible weighting schemes. Aggregated measures display less disagreement and volatility and are stronger predictors of consumers’ spending plans. The relative informational value of aggregated measures rises with the individual-level gap between conventional and aggregated inflation expectations. Our results chart a new course for designing measurement of inflation expectations.
Keywords: Inflation Expectations; Consumer Behavior; Monetary Policy
JEL Codes: C83; E31; E52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| conventional inflation expectations (E31) | aggregated inflation expectations (E31) |
| aggregated inflation expectations (E31) | consumer spending plans (D12) |
| gap between conventional and aggregated inflation expectations (D84) | consumer uncertainty (D80) |
| subjective uncertainty (D80) | aggregation gap (E10) |
| cognitive complexity (D80) | consumer expectations (D84) |