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Is the Anchoring of Consumers' Inflation Expectations Shaped by Inflational Experience?

Lena Dräger () and Michael Lamla ()

No 7042, CESifo Working Paper Series from CESifo Group Munich

Abstract: In this paper, we explore the degree of anchoring of consumers’ individual long-run inflation expectations utilizing the University of Michigan Survey of Consumer’s rotating panel micro-structure. Our results indicate that long-run inflation expectations became more anchored over the last decades, as the degree of co-movement between short- and long-run expectations fell significantly. While we observe that the anchoring of expectations increases for all age and birth cohorts, it seems that older cohorts, who experienced the high inflation period of the 1970s, remain less anchored in their long-run inflation expectations as compared to the young cohorts. Older cohorts show a higher volatility in their degree of anchoring and react more to adverse news shocks. This alludes to potentially long-lasting costs of high inflation spells.

Keywords: anchoring; inflation expectations; micro data; birth cohort effects; news (search for similar items in EconPapers)
JEL-codes: E31 E52 E58 D84 C25 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac and nep-mon
Date: 2018
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