Inflation Expectations, Learning, and Supermarket Prices: Evidence from Survey Experiments
Author(s)
Cavallo, Alberto F.; Cruces, Guillermo; Perez-Truglia, Ricardo
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Information frictions play a central role in the formation of household inflation expectations, but there is no consensus about their origins. We address this question with novel evidence from survey experiments. We document two main findings. First, individuals in low inflation contexts have significantly weaker priors about the inflation rate. This finding suggests that rational inattention may be an important source of information frictions. Second, cognitive limitations also appear to be a source of information frictions: even when information about inflation statistics is available, individuals still place a significant weight on inaccurate sources of information, such as their memories of the price changes of the supermarket products they purchase. We discuss the implications of these findings for macroeconomic models and policymaking.
Date issued
2017-07Department
Sloan School of ManagementJournal
American Economic Journal: Macroeconomics
Publisher
American Economic Association
Citation
Cavallo, Alberto et al. "Inflation Expectations, Learning, and Supermarket Prices: Evidence from Survey Experiments." American Economic Journal: Macroeconomics 9, 3(July 2017): 1-35
Version: Final published version
ISSN
1945-7707
1945-7715