Inflation Preferences

48 Pages Posted: 25 Jul 2024

See all articles by Hassan Afrouzi

Hassan Afrouzi

Columbia University

Alexander Dietrich

Danish National Bank

Kristian Ove R. Myrseth

University of York

Romanos Priftis

European Central Bank (ECB)

Raphael Schoenle

Brandeis University

Multiple version iconThere are 2 versions of this paper

Date Written: July, 2024

Abstract

We document novel survey-based facts about preferred long-run inflation rates among US consumers. Consumers on average prefer a 0.20% annual inflation rate, well below the Federal Reserve’s 2% target. Inflation preferences not only correlate with demographic and socioeconomic characteristics, but also with economic reasoning. A randomized control trial reveals that two narratives based on economic models—describing how inflation lowers the real value of wages and money holdings—affect inflation preferences. While our results can inform the design of central bank communication on inflation targets, they also raise questions about the alignment between such targets and consumer preferences.

Keywords: household expectations, inflation preferences, survey

JEL Classification: C83, E31, E52

Suggested Citation

Afrouzi, Hassan and Dietrich, Alexander and Myrseth, Kristian Ove R. and Priftis, Romanos and Schoenle, Raphael, Inflation Preferences (July, 2024). ECB Working Paper No. 2024/2957, Available at SSRN: https://ssrn.com/abstract=4905176 or http://dx.doi.org/10.2139/ssrn.4905176

Hassan Afrouzi (Contact Author)

Columbia University ( email )

Alexander Dietrich

Danish National Bank ( email )

Kristian Ove R. Myrseth

University of York ( email )

Sally Baldwin Buildings
Heslington
York, North Yorkshire YO10 5DD
United Kingdom

Romanos Priftis

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Raphael Schoenle

Brandeis University ( email )

Waltham, MA 02454
United States

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