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The Price Is Right: Updating Inflation Expectations in a Randomized Price Information Experiment

Olivier Armantier, Scott Nelson, Giorgio Topa (), Wilbert van der Klaauw () and Basit Zafar
Additional contact information
Olivier Armantier: Federal Reserve Bank of New York
Scott Nelson: MIT

The Review of Economics and Statistics, 2016, vol. 98, issue 3, 503-523

Abstract: Using a unique, randomized information experiment embedded in a survey, this paper investigates how consumers’ inflation expectations respond to new information. We find that respondents, on average, update their expectations in response to (certain types of) information, and do so sensibly, in a manner consistent with Bayesian updating. As a result of information provision, the distribution of inflation expectations converges toward its center and cross-sectional disagreement declines. We document heterogeneous information processing by gender and present suggestive evidence of respondents forecasting under asymmetric loss. Our results provide support for expectation-formation models in which agents form expectations rationally but face information constraints.

Keywords: inflation expectations; information; heterogeneous expectations; updating; Bayesian learning (search for similar items in EconPapers)
JEL-codes: C81 D80 E31 (search for similar items in EconPapers)
Date: 2016
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Working Paper: The price is right: updating of inflation expectations in a randomized price information experiment (2012) Downloads
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The Review of Economics and Statistics is currently edited by Amitabh Chandra, Olivier Coibion, Bryan S. Graham, Shachar Kariv, Amit K. Khandelwal, Asim Ijaz Khwaja, Brigitte C. Madrian and Rohini Pande

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