Inflation Expectations and Behavior: Do Survey Respondents Act on Their Beliefs?

51 Pages Posted: 26 Aug 2011

See all articles by Olivier Armantier

Olivier Armantier

Federal Reserve Bank of New York

Wändi Bruine de Bruin

Carnegie Mellon University

Giorgio Topa

Federal Reserve Bank of New York

Wilbert van der Klaauw

Federal Reserve Bank of New York; IZA

Basit Zafar

Arizona State University

Multiple version iconThere are 2 versions of this paper

Date Written: August 1, 2011

Abstract

We compare the inflation expectations reported by consumers in a survey with their behavior in a financially incentivized investment experiment designed such that future inflation affects payoffs. The inflation expectations survey is found to be informative in the sense that the beliefs reported by the respondents are correlated with their choices in the experiment. Furthermore, most respondents appear to act on their inflation expectations showing patterns consistent (both in direction and magnitude) with expected utility theory. Respondents whose behavior cannot be rationalized tend to be less educated and to score lower on a numeracy and financial literacy scale. These findings are therefore the first to provide support to the microfoundations of modern macroeconomic models.

Keywords: inflation expectations, surveys, experimental economics

JEL Classification: C83, D12, E60, C90

Suggested Citation

Armantier, Olivier and Bruine de Bruin, Wändi and Topa, Giorgio and van der Klaauw, H. Wilbert and Zafar, Basit, Inflation Expectations and Behavior: Do Survey Respondents Act on Their Beliefs? (August 1, 2011). FRB of New York Staff Report No. 509. Available at SSRN: https://ssrn.com/abstract=1917448 or http://dx.doi.org/10.2139/ssrn.1917448

Olivier Armantier (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Wändi Bruine de Bruin

Carnegie Mellon University ( email )

Pittsburgh, PA 15213-3890
United States

Giorgio Topa

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

H. Wilbert Van der Klaauw

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States
212-720-5916 (Phone)
212-720-1844 (Fax)

IZA ( email )

Basit Zafar

Arizona State University ( email )

WP Carey School of Business, ASU
Tempe, AZ 85287
United States
9179326564 (Phone)

HOME PAGE: http://https://sites.google.com/site/basitakzafar/

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