Influencing household inflation expectations
Alberto Cavallo, Guillermo Crucas, Ricardo Perez-Truglia 10 November 2014
Although central banks have a natural desire to influence household inflation expectations, there is no consensus on how these expectations are formed or the best ways to influence them. This column presents evidence from a series of survey experiments conducted in a low-inflation context (the US) and a high-inflation context (Argentina). The authors find that dispersion in household expectations can be explained by the cost of acquiring and interpreting inflation statistics, and by the use of inaccurate memories about price changes of specific products. They also provide recommendations for central bank communication strategies.
Expectations about macroeconomic variables play an important role in economic theory and policymaking. Household inflation expectations, in particular, are key to understand consumption and investment decisions, and ultimately, the impact of monetary policies. Although central banks have a natural desire to influence expectations, there is no consensus on how household expectations are formed or what the best way to affect them is (see Bernanke 2007, Bachmann et al. 2012, Coibion and Gorodnichenko 2013, and Armantier et al. 2014).
expectations, beliefs, inflation, inflation expectations, monetary policy, US, Argentina, central bank communication, rational inattention, costly information, learning
Disagreement about inflation expectations: The case of Japanese households
Shusaku Nishiguchi, Jouchi Nakajima, Kei Imakubo 02 May 2014
Inflation expectations are not fully captured with a single number. One important aspect is the degree of "disagreement" or "dispersion" in such expectations. This column discusses how the distribution of Japanese households' medium-horizon inflation expectations evolved using survey data. As prices have been rising since 2013, the expectations distribution showed a decrease in respondents expecting deflation or high inflation, and there was a substantial increase in respondents expecting moderate inflation.
It is well known that inflation expectations vary across agents. Nevertheless, this fact has attracted little attention. Analysis of inflation expectations typically tend to focus on measures such as the mean and the median of such expectations. One of the distinguished exceptions is Mankiw et al. (2003), who discuss in a context of sticky information how the disagreement in US households' inflation expectations was evolving through the Volcker disinflation. Our recent research (Nishiguchi et al. 2014) has brought the disagreement issue once again to the fore.
inflation, Japan, inflation expectations
Are the golden years of central banking over?
Stefan Gerlach, Alberto Giovannini, Cédric Tille 17 July 2009
What lessons should central bankers take away from the financial crisis? This column summarises concerns about macro-prudential regulation, inflation expectations, and the interaction between monetary policy and financial regulation
Central banks have responded decisively to the ongoing financial and economic crisis by intervening forcefully and in innovative ways to support the financial system and the economy. In a report published today, we review the background and evolution of the crisis, focusing on what lessons central banks should draw (Gerlach, Giovannini, Tille, and Viñals 2009).
Global crisis Monetary policy
macro-prudential regulation, inflation expectations