Imperfect Information and Consumer Inflation Expectations: Evidence from Microdata

Abstract

This paper explores which factors trigger an adjustment in consumers' inflation expectations and looks at the implications regarding forecast errors. We find support for imperfect information models, as inflation volatility and news trigger an adjustment in expectations.

Central bank announcements: Big news for little people?

“…With regard to consumers' expectations, our paper relates to research analyzing how their expectations and perceptions are formed and which factors drive them. Easaw et al (2013) as well as Dräger and Lamla (2017) analyze how expectations of consumers are adjusted and which factors might aect the adjustment process. van der Cruijsen et al Finally, related to the literature on the role of mass media, our ndings conrm and emphasize the relevance of the media news channel of the transmission of policy announcements (Berger et al, 2011;Böhm et al, 2012;Reid et al, 2011) and characterize the mechanism of the impact of announcements on people's perceptions and expectations of interest rates and ination.…”

Do Central Banks Respond Timely to Developments in the Global Economy?

“…3 Using data on forecasts from professional forecasters, and surveys among households, information rigidities have been well documented empirically, see, e.g. Coibion and Gorodnichenko (2015); Dovern et al (2015); Dräger and Lamla (2017).…”

“…Second, our paper relates to the literature that analyses the efficacy of publicly communicating interest rate paths (Geraats, 2002;Woodford, 2005;Swanson, 2006;Mirkov and Natvik, 2016), and the loosely related literature on expectation formation and information rigidities (Coibion and Gorodnichenko, 2015;Dovern et al, 2015;Dräger and Lamla, 2017). Whatever the exact reason is, i.e.…”

Does the Media Help the General Public in Understanding Inflation?

“…Lamla and Lein (2015) find that media reporting has had meaningful impact on inflation perceptions and contributed to their sharp rise in the aftermath of the euro cash changeover. Dräger and Lamla (2017) reveal that when people have heard news on inflation, they are more likely to adjust their forecasts. Lamla and Maag (2012) document that media coverage affects disagreement of consumers.…”

“…In line with this aim, a first distinctive aspect of this paper is the use of granular data on media usage. Related papers on news effects either rely on a national measure of media reporting (Carroll, 2003;Lamla and Lein, 2015), or use a general question from surveys on whether people have heard news about inflation (Pfajfar and Santoro, 2013;Dräger and Lamla, 2017). Our paper innovates by using detailed information on the usage of individual media sources.…”