The Price Is Right: Updating Inflation Expectations in a Randomized Price Information Experiment
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The price is right.pdf
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Author(s)
Armantier, Olivier
Topa, Giorgio
van der Klaauw, Wilbert
Zafar, Basit
Nelson, Scott Thomas
Date Issued
July 2016
Journal
Review of Economics and Statistics
Publisher
MIT Press
Citation
Armantier, Olivier, Scott Nelson, Giorgio Topa, Wilbert van der Klaauw, and Basit Zafar. “The Price Is Right: Updating Inflation Expectations in a Randomized Price Information Experiment.” Review of Economics and Statistics 98, no. 3 (July 2016): 503–523. © 2016 Federal Reserve Bank of New York
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Final published version
Abstract
Using a unique, randomized information experiment embedded in a survey, this paper investigates how consumers’ inflation expectations respond to new information. We find that respondents, on average, update their expectations in response to (certain types of) information, and do so sensibly, in a manner consistent with Bayesian updating. As a result of information provision, the distribution of inflation expectations converges toward its center and cross-sectional disagreement declines. We document heterogeneous information processing by gender and present suggestive evidence of respondents forecasting under asymmetric loss. Our results provide support for expectation-formation models in which agents form expectations rationally but face information constraints.
MIT Department
Massachusetts Institute of Technology. Department of Economics
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Article is made available in accordance with the publisher's policy and may be subject to US copyright law. Please refer to the publisher's site for terms of use.
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DOI of Published Version
https://doi.org/10.1162/REST_a_00499
