The Price Is Right: Updating Inflation Expectations in a Randomized Price Information Experiment
Author(s)
Armantier, Olivier; Topa, Giorgio; van der Klaauw, Wilbert; Zafar, Basit; Nelson, Scott Thomas
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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.
Date issued
2016-07Department
Massachusetts Institute of Technology. Department of EconomicsJournal
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
Version: Final published version
ISSN
0034-6535
1530-9142