News on Inflation and the Epidemiology of Inflation Expectations

European Banking Center Discussion Paper No. 2012-012

Center Discussion Paper Series No. 2012-048

47 Pages Posted: 16 Jun 2012

See all articles by Damjan Pfajfar

Damjan Pfajfar

Board of Governors of the Federal Reserve System

Emiliano Santoro

University of Copenhagen - Department of Economics

Date Written: May 30, 2012

Abstract

This paper examines the nexus between news coverage on inflation and households' inflation expectations. In doing so, we test the epidemiological foundations of the sticky information model (Carroll, 2003, 2006). We use both aggregate and household-level data from the Survey Research Center at the University of Michigan. We highlight a fundamental disconnection between news on inflation, consumers' frequency of expectation updating and the accuracy of their expectations. Our evidence provides at best weak support to the epidemiological framework, as most of the consumers who update their expectations do not revise them towards professional forecasters' mean forecast.

Keywords: Inflation, Survey Expectations, News, Information Stickiness

JEL Classification: C53, D84, E31

Suggested Citation

Pfajfar, Damjan and Santoro, Emiliano, News on Inflation and the Epidemiology of Inflation Expectations (May 30, 2012). European Banking Center Discussion Paper No. 2012-012. Available at SSRN: https://ssrn.com/abstract=2084217 or http://dx.doi.org/10.2139/ssrn.2084217

Damjan Pfajfar (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Emiliano Santoro

University of Copenhagen - Department of Economics ( email )

Øster Farimagsgade 5
Bygning 26
1353 Copenhagen K.
Denmark

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