Heterogeneity in Household Inflation Expectations: Policy Implications

Taeyoung Doh, Ji Hyung Lee and Woong Yong Park

No RWP 24-06, Research Working Paper from Federal Reserve Bank of Kansas City

Abstract: We empirically characterize the heterogeneity in the conditional distribution of household inflation expectations across demographic groups using the Survey of Consumer Expectations and also investigate how monetary policy shocks affect the conditional distribution. We find that, across all the groups, the peak of the group-specific distribution of household inflation expectations aligns closely with the 2% target set by the Federal Reserve, but there is substantial heterogeneity both within and across groups, primarily on the right. However, in response to a contractionary monetary policy shock identified by high-frequency financial market responses, households overall adjust their inflation expectations significantly downwards. In addition, the magnitude of the reaction is more pronounced in the upper quantile of low income groups whose unconditional inflation expectations are less well anchored.

Keywords: Household Inflation Expectations Project (HIEP); monetary policy; high frequency identification; quantile regression (search for similar items in EconPapers)
JEL-codes: E31 E52 E58 (search for similar items in EconPapers)
Pages: 38
Date: 2024-07-15, Revised 2024-11-15
New Economics Papers: this item is included in nep-cba and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedkrw:98545

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DOI: 10.18651/RWP2024-06

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