The Hidden Heterogeneity of Inflation and Interest Rate Expectations: The Role of Preferences

Lena Dräger, Michael J. Lamla, Damjan Pfajfar, Lena Dräger and Michael Lamla
Authors registered in the RePEc Author Service: Lena Dräger and Michael Lamla

No 9637, CESifo Working Paper Series from CESifo

Abstract: We study consumers’ preferences on expected inflation and interest rates. Preferences are measured by asking survey respondents whether they view the expected levels of inflation or interest rates as appropriate for the economy, or whether they would prefer higher or lower levels. For a given level of expectations, we observe substantial heterogeneity in these macroeconomic preferences: Consumers with the same inflation or interest rate expectations can differently assess whether they view this level as appropriate for the economy, or not. However, the ratio of those who think inflation is reasonable is the highest for the group that expects inflation rate of about 1%. The relationship between preferences and underlying expectations remains remarkably robust across different inflation regimes. Overall, macroeconomic preferences co-vary with socio-demographic characteristics like income and education, but are not related to individuals’ net wealth position. They correlate with risk preferences and with trust in the central bank: More risk-loving respondents or those with strong trust in the ECB’s ability to realize price stability are less likely to prefer lower inflation or higher interest rates than the expected levels.

Keywords: macroeconomic expectations; monetary policy perceptions; inflation and interest rate preferences; risk preferences; survey microdata (search for similar items in EconPapers)
JEL-codes: D84 E31 E52 E58 (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Working Paper: The Hidden Heterogeneity of Inflation and Interest Rate Expectations: The Role of Preferences (2023)
Working Paper: The Hidden Heterogeneity of Inflation and Interest Rate Expectations: The Role of Preferences (2021)
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