Making sense of consumer inflation expectations: the role of uncertainty

Lovisa Reiche and Aidan Meyler

No 2642, Working Paper Series from European Central Bank

Abstract: Consumers’ inflation expectations play a key role in the monetary transmission mechanism. As such, it is crucial for monetary policymakers to understand what they are and how they are formed. In this paper we introduce the (un)certainty channel as means to shed light on some of the more puzzling aspects of reported quantitative inflation perceptions and expectations. These include the apparent overestimation of inflation by consumers as well as the negative correlation observed between the economic outlook and inflation expectations. We also show that the uncertainty framework fits with some of the stylised facts of consumers’ inflation expectations, such as their correlation with socio-demographic characteristics and economic sentiment. JEL Classification: D11, D12, D84, E31, E52

Keywords: consumers; expectations; inflation; uncertainty (search for similar items in EconPapers)
Date: 2022-02
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac and nep-mon
Note: 496790
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Related works:
Working Paper: Making Sense of Consumer Inflation Expectations: The Role of Uncertainty (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20222642

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