Seeing Through Different Lenses: Partisanship and Updating of Inflation Expectations

81 Pages Posted: 15 Apr 2024

See all articles by Samir Huseynov

Samir Huseynov

Auburn University

Zahra Murad

University of Portsmouth

Date Written: March 26, 2024

Abstract

In an incentivized survey experiment with 1080 U.S. households, we study how Republican and Democrat participants update their inflation expectations. Households' inflation beliefs can either enhance or diminish the effectiveness of the Fed's monetary tightening policies aimed at taming inflation. We document that households hold different prior inflation beliefs across partisan lines. We provide economic information by exogenously changing its tone ("good" or "bad" news) and source (No Source, CNN, or Fox) and elicit posterior inflation beliefs. Our research design allows us to map the belief-updating process when partisans are exposed to politically congruent or misaligned news sources. Participants exhibit asymmetric belief updating and tend to overreact to economic information with respect to the Full Information Rational Expectation (FIRE) and Bayesian benchmarks. This effect is stronger when Republicans receive news pieces from CNN. However, belief updating is more symmetric and closer to the FIRE and Bayesian benchmarks in the No Source condition, where the information source is not disclosed. Our study highlights the importance of using non-partisan media sources for communicating monetary policy goals and strategies to the public.

Keywords: Inflation, information tone, information source, asymmetric reaction, Bayesian updating, belief entropy, experiment.

JEL Classification: E71, C90, D84, E52.

Suggested Citation

Huseynov, Samir and Murad, Zahra, Seeing Through Different Lenses: Partisanship and Updating of Inflation Expectations (March 26, 2024). Available at SSRN: https://ssrn.com/abstract=4773415 or http://dx.doi.org/10.2139/ssrn.4773415

Samir Huseynov (Contact Author)

Auburn University ( email )

181 Roosevelt Dr Auburn, AL 36849.
Comer Hall, Office 302
Auburn, AL 36849
United States

Zahra Murad

University of Portsmouth ( email )

University House
Winston Churchhill Avenue
Portsmouth, Hampshire PO1 2UP
United Kingdom

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