Consumer Attitudes and the Epidemiology of Inflation Expectations

CentER Discussion Paper Series No. 2014-029

36 Pages Posted: 24 Apr 2014

See all articles by Michael Ehrmann

Michael Ehrmann

European Central Bank (ECB); Bank of Canada

Damjan Pfajfar

Board of Governors of the Federal Reserve System

Emiliano Santoro

Catholic University of the Sacred Heart of Milan - Department of Economics

Date Written: April 23, 2014

Abstract

This paper studies the formation of consumers’ inflation expectations using micro-level data from the Michigan Survey. It shows that beyond the well-established socio-economic determinants of inflation expectations like gender, income or education also other characteristics like the household’s financial situation and its purchasing attitudes matter. Respondents with current or expected …financial difficulties, with pessimistic attitudes about major purchases, or who expect income to go down in the future have considerably higher forecast errors, are further away from professional forecasts and have a stronger upward bias in their expectations than other households. However, their bias shrinks by more than the one of the average household in response to increasing media reporting about inflation.

Keywords: Survey Infl‡ation Expectations; News on In‡flation; Information Stickiness; Consumer Attitudes.

JEL Classification: C53, D84, E31

Suggested Citation

Ehrmann, Michael and Pfajfar, Damjan and Santoro, Emiliano, Consumer Attitudes and the Epidemiology of Inflation Expectations (April 23, 2014). CentER Discussion Paper Series No. 2014-029. Available at SSRN: https://ssrn.com/abstract=2428152 or http://dx.doi.org/10.2139/ssrn.2428152

Michael Ehrmann (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
+49 69 1344/7327 (Phone)
+49 69 1344/6000 (Fax)

Bank of Canada ( email )

234 Wellington Street
Ontario, Ottawa K1A 0G9
Canada

Damjan Pfajfar

Board of Governors of the Federal Reserve System ( email )

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

Emiliano Santoro

Catholic University of the Sacred Heart of Milan - Department of Economics ( email )

20123 Milano
Italy

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