House Price Expectations and Inflation Expectations: Evidence from Survey Data

Vedanta Dhamija (), Ricardo Nunes and Roshni Tara ()
Additional contact information
Vedanta Dhamija: University of Surrey
Roshni Tara: University of Surrey

No 2318, Discussion Papers from Centre for Macroeconomics (CFM)

Abstract: We find that households tend to overweight house price expectations when forming their inflation expectations. The finding is robust across several specifications and two survey data sets for the United States. We also find that there is a significant effect of the cognitive abilities of households as more sophisticated households don’t overweight house price inflation as much. We model this household behaviour in a two-sector New Keynesian model with an overweighted and a non-overweighted sector and analytically derive a welfare loss function consistent with the micro-foundations of the model. In this setup, we show that to gauge the correct interest rate response, the central bank needs to be aware that some sectors are overweighted and that movements in expected inflation in such sectors are important for monetary policy.

Keywords: Salience; Inflation Expectations; House Price Expectations; Monetary Policy (search for similar items in EconPapers)
JEL-codes: D10 E12 E31 E52 E58 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2023-07
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Working Paper: House Price Expectations and Inflation Expectations: Evidence from Survey Data (2025)
Working Paper: House Price Expectations and Inflation Expectations: Evidence from Survey Data (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:cfm:wpaper:2318

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