Greater Than the Sum of the Parts: Aggregate vs. Aggregated Inflation Expectations

Alexander Dietrich, Edward Knotek, Kristian Ove R. Myrseth, Robert Rich, Raphael Schoenle and Michael Weber

No 22-20, Working Papers from Federal Reserve Bank of Cleveland

Abstract: Using novel survey evidence on consumer inflation expectations disaggregated by personal consumption expenditure (PCE) categories, we document the paradox that consumers' aggregate inflation expectations usually exceed any individual category expectation. We explore procedures for aggregating category inflation expectations, and find that the inconsistency between aggregate and aggregated inflation expectations rises with subjective uncertainty and is systematically related to socioeconomic characteristics. Overall, our results are inconsistent with the notion that consumers' aggregate inflation expectations comprise an expenditure-weighted sum of category beliefs. Moreover, aggregated inflation expectations explain a greater share of planned consumer spending than aggregate inflation expectations.

Keywords: Household expectations; Survey; Sectoral expectations; Inflation expectations (search for similar items in EconPapers)
JEL-codes: C83 E31 E52 (search for similar items in EconPapers)
Pages: 45
Date: 2022-06-22
New Economics Papers: this item is included in nep-mac and nep-mon
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedcwq:94364

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DOI: 10.26509/frbc-wp-202220

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