Imperfect information and inflation expectations

Lena Draeger and Michael Lamla
Authors registered in the RePEc Author Service: Lena Dräger

No 13-329, KOF Working papers from KOF Swiss Economic Institute, ETH Zurich

Abstract: We investigate the updating behavior of individual consumers regarding their shortand long-run inflation expectations. Utilizing the University of Michigan Survey of Consumer's rotating panel microstructure, we can identify whether individuals adjust their inflation expectations over a period of six months. We find evidence that the updating frequency has been underestimated. Furthermore, looking at the possible determinants of an update we find support for imperfect information models. Moreover, individual expectations are found to be more accurate after an update and forecast accuracy is affected by inflation volatility measures and news regarding inflation. Finally, the updating frequency is found to significantly move spreads in bond markets.

Keywords: Rational Inattention; Updating inflation expectations; Microdata; News (search for similar items in EconPapers)
Pages: 38 pages
Date: 2013-01
New Economics Papers: this item is included in nep-cba and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:kof:wpskof:13-329

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