Disagreement in consumer inflation expectations

Tomasz Łyziak and Xuguang Simon Sheng

No 278, NBP Working Papers from Narodowy Bank Polski

Abstract: We posit that consumers form expectations about inflation by combining two sources of information: their beliefs from shopping experience and news about inflation they learn from experts. Disagreement among consumers in our model comes from four sources: (i) consumers’ divergent prior beliefs, (ii) heterogeneity in their propensities to learn from experts, (iii) experts’ different views about future inflation, and (iv) difference in mean expectations between consumers and experts. By carefully matching the datasets from the Michigan Survey of Consumers with the Survey of Professional Forecasters, we find that inflation expectations between households and experts differ substantially and persistently from each other, and households pay close attention to salient price changes, while experts respond more to monetary policy and macro indicators. Our empirical estimates imply economically significant degrees of information rigidity and these estimates vary substantially across households. This significant heterogeneity poses a great challenge for the canonical sticky-information model that assumes a single rate of information acquisition and for noisy-information model in which all agents place the same weight on new information received.

Keywords: Consumers; Disagreement; Inflation Expectation; Noisy Information; Sticky Information (search for similar items in EconPapers)
JEL-codes: E32 E52 (search for similar items in EconPapers)
Pages: 30
Date: 2018
New Economics Papers: this item is included in nep-mac, nep-mkt and nep-mon
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Citations: View citations in EconPapers (5)

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Journal Article: Disagreement in Consumer Inflation Expectations (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:nbp:nbpmis:278

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