Households' probabilistic inflation expectations in high-inflation regimes

Christoph Becker, Peter Dürsch, Thomas A. Eife and Alexander Glas

No 01/2023, FAU Discussion Papers in Economics from Friedrich-Alexander University Erlangen-Nuremberg, Institute for Economics

Abstract: Central bank surveys frequently elicit households' probabilistic beliefs about future inflation. The responses provide only a coarse picture of inflation beliefs further away from zero. Using data from the Bundesbank household panel, we show that the current high-inflation environment induces respondents to allocate considerable probability to the rightmost open interval. This pile-up of probabilities negatively affects estimates of histogram moments and leads to a divergence between average expected inflation measured by probabilistic and point forecasts. The consistency of predictions can be improved by using an alternative design of the response scale that allows respondents to state more detailed beliefs for higher inflation ranges.

Keywords: Probabilistic expectations; inflation; survey data (search for similar items in EconPapers)
JEL-codes: D84 E31 E58 (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-ban, nep-cba, nep-eec and nep-mon
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Working Paper: Households' probabilistic inflation expectations in high-inflation regimes (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:iwqwdp:012023

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