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Title:Do actions speak louder than words? Household expectations of inflation based on micro consumption data PDF Logo
Authors:Inoue, Atsushi
Kilian, Lutz
Kiraz, Fatma Burcu
Issue Date:2006
Series/Report no.:Discussion paper Series 1 / Volkswirtschaftliches Forschungszentrum der Deutschen Bundesbank 2006,26
Abstract:Survey data on household expectations of inflation are routinely used in economic analysis, yet it is not clear to what extent households are able to articulate their expectations in survey interviews. We propose an alternative approach to recovering households' implicit expectations of inflation from their consumption expenditures. We show that these implicit expectations have predictive power for CPI inflation. They are better predictors of CPI inflation than survey responses, except for highly educated consumers. Moreover, households' implicit inflation expectations respond to inflation news, consistent with recent work on the transmission of information across consumers. The response of consumers' expectations to inflation news tends to increase with their level of education. Our evidence strengthens the case for macroeconomic models with sticky information.
Subjects:Inflation Expectations
Consumer Expenditure Survey
Michigan Survey of Consumers
Survey of Professional Forecasters
Euler Equation
JEL:D84
D12
E31
Document Type:Working Paper
Appears in Collections:Discussion Paper Series 1: Economic Studies, Deutsche Bundesbank

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