Inflation expectations and behavior: Do survey respondents act on their beliefs?

Olivier Armantier, Wändi Bruine de Bruin, Giorgio Topa, Wilbert van der Klaauw, Basit Zafar

Research output: Contribution to journalArticle

33 Scopus citations

Abstract

We compare the inflation expectations reported by consumers in a survey with their behavior in a financially incentivized investment experiment. The survey is found to be informative in the sense that the beliefs reported by the respondents are correlated with their choices in the experiment. More importantly, we find evidence that most respondents act on their inflation expectations showing patterns consistent with economic theory. Respondents whose behavior cannot be rationalized tend to have lower education and lower numeracy and financial literacy. These findings help confirm the relevance of inflation expectations surveys and provide support to the microfoundations of modern macroeconomic models.

Original languageEnglish (US)
Pages (from-to)505-536
Number of pages32
JournalInternational Economic Review
Volume56
Issue number2
DOIs
StatePublished - Jan 1 2015
Externally publishedYes

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ASJC Scopus subject areas

  • Economics and Econometrics

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