The Long-term Effects of Inflation on Inflation Expectations

62 Pages Posted: 13 Jul 2023 Last revised: 7 Mar 2024

See all articles by Fabio Braggion

Fabio Braggion

Tilburg University - Tilburg University School of Economics and Management; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Felix von Meyerinck

University of Zurich - Department of Finance

Nic Schaub

WHU - Otto Beisheim School of Management

Michael Weber

University of Chicago - Finance; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: February 13, 2024

Abstract

We study the long-term effects of inflation surges on inflation expectations. German households living in areas with higher local inflation during the hyperinflation of the 1920s expect higher inflation today, after partialling out determinants of historical inflation and current inflation expectations Our evidence points towards transmission of inflation experiences from parents to children and through collective memory. Differential historical inflation also modulates the updating of expectations to current inflation, the response to economic policies affecting inflation, and financial decisions. We obtain similar results for Polish households residing in formerly German areas. Overall, our findings are consistent with inflationary shocks having a long-lasting impact on attitudes towards inflation.

Keywords: Inflation, inflation expectations, long-term persistence, German hyperinflation

JEL Classification: D14, E31, E71, G41, N14

Suggested Citation

Braggion, Fabio and von Meyerinck, Felix and Schaub, Nic and Weber, Michael, The Long-term Effects of Inflation on Inflation Expectations (February 13, 2024). Chicago Booth Research Paper No. 23-13, Available at SSRN: https://ssrn.com/abstract=4503275 or http://dx.doi.org/10.2139/ssrn.4503275

Fabio Braggion

Tilburg University - Tilburg University School of Economics and Management ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Felix Von Meyerinck (Contact Author)

University of Zurich - Department of Finance ( email )

Plattenstr 32
Zurich, 8032
Switzerland

Nic Schaub

WHU - Otto Beisheim School of Management ( email )

Burgplatz 2
Vallendar, 56179
Germany

Michael Weber

University of Chicago - Finance ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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