Asymmetric information and misaligned inflation expectations

Zhao Han

Journal of Monetary Economics, 2024, vol. 143, issue C

Abstract: Recent survey evidence reveals misaligned inflation expectations among economic agents. While households associate higher expected inflation with lower output growth, professional forecasters link higher future inflation to higher output growth. Firms’ expectations display neither negative nor positive correlations. We explain such patterns jointly in a general equilibrium New Keynesian framework. Asymmetric information arises naturally as (i) households and firms receive imperfect, asymmetric information about supply and demand shocks, and (ii) the central bank learns from equilibrium outcomes (i.e., output and inflation) as opposed to the private sector. Survey data help uncover the magnitudes of information frictions among economic agents.

Keywords: Inflation dynamics; Expectation formation; Survey data; Business cycles; Monetary policy; Central bank communication (search for similar items in EconPapers)
JEL-codes: C53 D82 D83 E12 E27 E31 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:143:y:2024:i:c:s0304393223001253

DOI: 10.1016/j.jmoneco.2023.10.010

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