Inflation Expectations and Behavior: Do Survey Respondents Act on their Beliefs?

Wilbert van der Klaauw, Wandi Bruine de Bruin, Giorgio Topa, Basit Zafar and Olivier Armantier
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Wandi Bruine de Bruin: Carnegie Mellon University
Olivier Armantier: Federal Reserve Bank of New York

No 121, 2012 Meeting Papers from Society for Economic Dynamics

Abstract: We compare the inflation expectations reported by consumers in a survey with their behavior in a financially incentivized investment experiment designed such that future inflation affects payoffs. The inflation expectations survey is found to be informative in the sense that the beliefs reported by the respondents are correlated with their choices in the experiment. Furthermore, most respondents appear to act on their inflation expectations showing patterns consistent (both in direction and magnitude) with expected utility theory. Respondents whose behavior cannot be rationalized tend to be less educated and to score lower on a numeracy and financial literacy scale. These findings are therefore the first to provide support to the micro-foundations of modern macroeconomic models.

Date: 2012
New Economics Papers: this item is included in nep-mon
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Related works:
Journal Article: INFLATION EXPECTATIONS AND BEHAVIOR: DO SURVEY RESPONDENTS ACT ON THEIR BELIEFS? (2015)
Working Paper: Inflation Expectations and Behavior: Do Survey Respondents Act on Their Beliefs? (2011)
Working Paper: Inflation expectations and behavior: Do survey respondents act on their beliefs? (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed012:121

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