Exposure to Daily Price Changes and Inflation Expectations

Francesco D’Acunto, Ulrike Malmendier, Juan Ospina-Tejeiro and Michael Weber

No 26237, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We show that, to form aggregate inflation expectations, consumers rely on the price changes they face in their daily lives while grocery shopping. Specifically, the frequency and size of price changes, rather than their expenditure share, matter for individuals' inflation expectations. To document these facts, we collect novel micro data for a representative US sample that uniquely match individual expectations, detailed information about consumption bundles, and item-level prices. Our results suggest that the frequency and size of grocery-price changes to which consumers are personally exposed should be incorporated in models of expectations formation. Central banks' focus on core inflation---which excludes grocery prices---to design expectations-based policies might lead to systematic mistakes.

JEL-codes: C83 D14 D84 D9 E31 E52 E71 G11 (search for similar items in EconPapers)
Date: 2019-09
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Note: AG AP CF EFG ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (65)

Downloads: (external link)
http://www.nber.org/papers/w26237.pdf (application/pdf)

Related works:
Working Paper: Exposure to Daily Price Changes and Inflation Expectations (2019)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:26237

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w26237

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().