Cognitive Abilities and Inflation Expectations

Francesco D'Acunto, Daniel Hoang, Maritta Paloviita () and Michael Weber

AEA Papers and Proceedings, 2019, vol. 109, 562-66

Abstract: Cognitive abilities help explain the large cross-sectional variation in inflation expectations at the household level. But which type of cognitive abilities are important? We find that not only quantitative abilities but also logical and verbal abilities are important to explain the accuracy and plausibility of households' inflation expectations. We discuss the channels through which different forms of cognition might shape households' abilities to forecast future macroeconomic variables. We also draw implications for the effectiveness of policies that aim to manage households' expectations.

JEL-codes: D12 D84 E31 E37 (search for similar items in EconPapers)
Date: 2019
Note: DOI: 10.1257/pandp.20191050
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Citations: View citations in EconPapers (43)

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