TY - JOUR
T1 - The price is right
T2 - Updating inflation expectations in arandomized price information experiment
AU - Armantier, Olivier
AU - Nelson, Scott
AU - Topa, Giorgio
AU - van der Klaauw, Wilbert
AU - Zafar, Basit
N1 - Publisher Copyright:
© 2016 Federal Reserve Bank of New York.
PY - 2016/7/1
Y1 - 2016/7/1
N2 - 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.
AB - 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.
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U2 - 10.1162/REST_a_00499
DO - 10.1162/REST_a_00499
M3 - Article
AN - SCOPUS:84978383963
SN - 0034-6535
VL - 98
SP - 503
EP - 523
JO - Review of Economics and Statistics
JF - Review of Economics and Statistics
IS - 3
ER -