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Inflation Expectations, Learning and Supermarket Prices: Evidence from Survey Experiments

67 Pages Posted: 23 Aug 2014 Last revised: 2 Jun 2016

Alberto Cavallo

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Guillermo Cruces

Universidad Nacional de La Plata - Centro de Estudios Distributivos, Laborales y Sociales (CEDLAS); IZA

Ricardo Perez-Truglia

University of California, Los Angeles (UCLA)

Multiple version iconThere are 2 versions of this paper

Date Written: May 1, 2016

Abstract

Information frictions play a central role in the formation of household inflation expectations, but there is no consensus about their origins. We address this question with novel evidence from survey experiments. We document two main findings. First, individuals in lower-inflation contexts have significantly weaker priors about the inflation rate. This finding suggests that rational inattention may be an important source of information frictions. Second, cognitive limitations also appear to be a source of information frictions: even when information about inflation statistics is made readily available, individuals still place a significant weight on less accurate sources of information, such as their memories of the price changes of the supermarket products they purchase. We discuss the implications of these findings for macroeconomic models and policy-making.

Keywords: inflation expectations, field experiment, rational inattention, supermarket

JEL Classification: C93, D83, D84, E31, E58

Suggested Citation

Cavallo, Alberto and Cruces, Guillermo and Perez-Truglia, Ricardo, Inflation Expectations, Learning and Supermarket Prices: Evidence from Survey Experiments (May 1, 2016). Available at SSRN: https://ssrn.com/abstract=2484887 or http://dx.doi.org/10.2139/ssrn.2484887

Alberto Cavallo

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA 02142
United States

Guillermo Cruces

Universidad Nacional de La Plata - Centro de Estudios Distributivos, Laborales y Sociales (CEDLAS) ( email )

Centro de Estudios Distributivos, Laborales y
Sociales, Calle 6 e/47 y 48
La Plata, Provincia de Buenos Aires 1900
Argentina

HOME PAGE: http://cedlas.econo.unlp.edu.ar

IZA

P.O. Box 7240
Bonn, D-53072
Germany

Ricardo Perez-Truglia (Contact Author)

University of California, Los Angeles (UCLA) ( email )

405 Hilgard Avenue
Box 951361
Los Angeles, CA 90095
United States

HOME PAGE: http://www.anderson.ucla.edu/faculty/global-economics-and-management/perez-truglia

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