The price is right: Updating inflation expectations in arandomized price information experiment

Olivier Armantier, Scott Nelson, Giorgio Topa, Wilbert van der Klaauw, Basit Zafar

Research output: Contribution to journalArticlepeer-review

24 Scopus citations

Abstract

Abstract-Using a unique, randomized information experiment embedded in a survey, this paper investigates how consumers' inflation expectations respond to new information. We find that respondents, on average, update their expectations in response to (certain types of) information, and do so sensibly, in a manner consistent with Bayesian updating. As a result of information provision, the distribution of inflation expectations converges toward its center and cross-sectional disagreement declines. We document heterogeneous information processing by gender and present suggestive evidence of respondents forecasting under asymmetric loss. Our results provide support for expectation-formation models in which agents form expectations rationally but face information constraints.

Original languageEnglish (US)
Pages (from-to)503-523
Number of pages21
JournalReview of Economics and Statistics
Volume98
Issue number3
DOIs
StatePublished - Jul 1 2016

ASJC Scopus subject areas

  • Social Sciences (miscellaneous)
  • Economics and Econometrics

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