Household Informedness and Long-Run Inflation Expectations: Experimental Evidence

Abstract

This paper uses an experiment embedded in a survey to analyze the response of consumers' long-run inflation expectations to information about the Federal Reserve's inflation target and a graph and summary of past inflation. On average, respondents revise forecasts toward the 2% target with either information treatment, and both forecast uncertainty and heterogeneity decline with the treatments, but remain substantial. Since the information in the treatments is publicly available, these findings are consistent with models of imperfect information in which agents do not fully and continually update their information sets or incorporate all available information into their expectations.

Keywords: Monetary Policy, Inflation Expectations, Inflation Targeting, Experiment, Survey, Federal Reserve

JEL Classification: D12, D83, D84, E31, E52, E58