Partisan bias in inflation expectations

Abstract

We examine partisan bias in inflation expectations. Our dataset includes inflation expectations of the New York Fed's Survey of Consumer Expectations over the period June 2013 to June 2018. The results show that inflation expectations were 0.46 percentage points higher in Republican-dominated than in Democratic-dominated US states when Barack Obama was US president. Compared to inflation expectations in Democratic-dominated states, inflation expectations in Republican-dominated states declined by 0.73 percentage points when Donald Trump became president. We employ the Blinder-Oaxaca decomposition method to disentangle the extent to which political ideology and other individual characteristics predict inflation expectations: around 25% of the total difference between inflation expectations in Democraticdominated versus Republican-dominated states is based on how partisans respond to changes in the White House's occupant (partisan bias). The results also corroborate the belief that voters' misperceptions of economic conditions decline when the president belongs to the party that voters support.

The Global Economic Impact of Politicians: Evidence from an International Survey Rct

“…We also contribute to studies that investigate how government ideology influences macroeconomic outcomes and expectations (e.g. Santa-Clara and Volkanov, 2003;Gerber and Huber, 2010;Blinder and Watson, 2016;Cahan and Potrafke, 2017;Potrafke, 2017Potrafke, , 2018Bachmann et al, 2020;Pastor and Veronesi, 2020). Examining how government ideology in the United States influences expectations about economic outcomes in other countries is new.…”

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“…For example, the severity and timing of the imposition of the containment measures themselves could depend on the political leaning of the state governments. At the same time, these political leanings could have affected inflation beliefs independently of the containment measures (Bachmann et al 2021 ). As a robustness check, we omitted individuals that reside in the five states 10 that flipped from Republican to Democrat at the 2020 US Presidential Election and re‐estimated our regressions.…”

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