Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/273729 
Year of Publication: 
2023
Series/Report no.: 
Deutsche Bundesbank Discussion Paper No. 17/2023
Publisher: 
Deutsche Bundesbank, Frankfurt a. M.
Abstract: 
This paper documents a strong relationship between households' perceptions about inflation over the past 12 months and households' short- and long-term expectations about future inflation. This relationship is strong during periods of high-inflation but even stronger during low-inflation periods. We establish a causal relationship by implementing a randomized information provision experiment in a large and representative survey to generate an exogenous variation in inflation perceptions. Our results show that household perceptions about past inflation drive their expectations about future inflation rates. The strength of the pass-through from perceptions to expectations varies across socioeconomic groups. We identify two critical moderating factors for this heterogeneity; differences in individual uncertainty about future inflation and information acquisition. Further, we show that the large majority of households rely on their shopping experience when forming their perceptions about past inflation and pay particular attention to food and fuel prices. The shopping experience affects inflation expectations indirectly - through perceptions.
Subjects: 
inflation dynamics
expectations
perceptions
uncertainty
household finance
monetary policy
randomized control trial
JEL: 
D10
D84
D90
E31
E52
G40
G50
ISBN: 
978-3-95729-948-2
Document Type: 
Working Paper

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