State-Dependent Updating of Household Inflation Expectations​

Faith Christian Cacnio and Cymon Kayle Lubangco
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Faith Christian Cacnio: Bangko Sentral ng Pilipinas
Cymon Kayle Lubangco: Bangko Sentral ng Pilipinas

No 202606, BSP Discussion Paper Series from Bangko Sentral ng Pilipinas

Abstract: This paper examines how households combine public inflation signals with their own experience-based beliefs when forming expectations, and how the weights assigned to these inputs vary with inflation persistence. We exploit a unique feature of the Bangko Sentral ng Pilipinas Consumer Expectations Survey which elicits expectations both before and after respondents are exposed to an official inflation statistic. This survey design allows for a direct, non-experimental estimation of the weight households assign to public information when updating their expectations. Using quarterly data for 2010 to 2024, we find that exposure to public inflation information shifts expectations toward the official statistic, reduces dispersion, and improves forecast accuracy. Households place substantial, though incomplete, weight to public signals, consistent with the presence of information frictions. Importantly, this weight is state dependent, increasing with inflation persistence. In periods of high persistence, households tend to extrapolate the effects of inflation shocks, but exposure to public signals can counteract this tendency.

JEL-codes: D84 E31 E58 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2026-06
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Published as BSP Discussion paper No. 2026-06, July 2026

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Persistent link: https://EconPapers.repec.org/RePEc:bhd:dpaper:202606

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