The Formation of Inflation Expectations: Microdata Evidence from Japan

We propose a novel approach for measuring inflation expectations, which can alleviate the rounding number problem. Furthermore, we examine how consumers form inflation expectations. We find that consumers heterogeneously update their information sets on prices; 46% of the consumers collect information about the consumer price index at least once a quarter, while the remaining consumers less frequently or never obtain this information. We also find that forecast revisions are sensitive to a change in food prices. More than half of consumers are attentive only to a change in food prices and may form their inflation expectations using food price changes as a signal of fluctuations in the overall inflation rates. The existence of consumers who are inattentive to aggregate inflation casts doubt on the transmission of monetary policy through the management of expectations.     

Do Actions Speak Louder Than Words? Household Expectations of Inflation Based on Micro Consumption Data

Survey data on household expectations of inflation are routinely used in economic analysis, yet it is not clear how accurately households are able to articulate their expectations in survey interviews. We propose an alternative approach to recovering households' expectations of inflation from their consumption expenditures. We show that these expectations measures have predictive power for consumer price index (CPI) inflation. They are better predictors of CPI inflation than household survey responses and more highly correlated with professional inflation forecasts, except for highly educated consumers, consistent with the view that more educated consumers are better able to articulate their expectations. We also document that households' inflation expectations respond to inflation news, as measured by the unpredictable component of inflation predictions in the Survey of Professional Forecasters. The response to inflation news tends to increase with households' level of education, consistent with the existence of constraints on household's ability to process this information.     

Measuring Inflation Expectations Uncertainty Using High‐Frequency Data

Inflation expectations play a key role in determining future economic outcomes. The associated uncertainty provides a direct gauge of how well‐anchored the inflation expectations are. We construct a model‐based measure of inflation expectations uncertainty by augmenting a standard unobserved components model of inflation with information from noisy and possibly biased measures of inflation expectations obtained from financial markets. This new model‐based measure of inflation expectations uncertainty is more accurately estimated and can provide valuable information for policymakers. Using U.S. data, we find significant changes in inflation expectations uncertainty during the Great Recession.     

Disagreement in Consumer Inflation Expectations

By carefully matching the data sets from the Michigan Survey of Consumers with the Survey of Professional Forecasters, we show that there exists substantial heterogeneity in the propensity of U.S. households to learn from experts in forming inflation expectations. Additional results for a group of European economies broadly confirm this observation. We advance an extended version of the sticky-information model to analyze disagreement in consumer inflation expectations. Besides differences in consumers' propensities to learn, disagreement in our model arises from heterogeneity in consumers' fundamental inflation and past expectations and experts' different views about future inflation.     

Inflation Expectations,Inflation Target Credibility,and the COVID-19 Pandemic: Evidence from Germany

Using the exact wording of the European Central Bank's definition of price stability, we started a representative online survey of German citizens in January 2019 that is designed to measure long-term inflation expectations and the credibility of the inflation target. Our results indicate that credibility has decreased in our sample period, particularly in the course of the deep recession implied by the Covid-19 pandemic. Interestingly, even though inflation rates in Germany have been clearly below 2% for several years, credibility has declined mainly because Germans increasingly expect that inflation will be much higher than 2% over the medium term. We investigate how inflation expectations and the impact of the pandemic depend on personal characteristics including age, gender, education, and political attitude.     

Out of Bounds: Do SPF Respondents Have Anchored Inflation Expectations?

Since the Federal Open Market Committee announced a 2% inflation target in 2012, the median long-run inflation forecast of professional forecasters has been near target. We show, however, that most individual forecasters' long-run inflation expectations fluctuate substantially, with sizeable departures from target. We propose a new “bounds anchoring” indicator based on deviations of individuals' long-run forecasts from target. This indicator sheds new light on gradual changes in expectations since the 2012 announcement. We find that bounds anchoring gradually strengthened in the years following the target announcement, but that this trend has recently started to reverse.     

Inflation Dynamics When Inflation Is Near Zero

We discuss the likely evolution of U.S. inflation in the near and medium terms on the basis of (i) past U.S. experience with very low levels of inflation, (ii) the most recent Japanese experience with negative inflation, and (iii) some preliminary U.S. micro evidence on downward nominal wage rigidity. Our findings question the view that stable long‐run inflation expectations and downward nominal wage rigidity will necessarily provide sufficient support to prices to avoid further declines in inflation. We show that an inflation model fitted on Japanese data over the past 20 years, which accounts for both short‐ and long‐run inflation expectations, matches the recent U.S. inflation experience quite well. While the model indicates that U.S. inflation might be subject to a lower bound, it does not rule out a prolonged period of low inflation or even mild deflation going forward. In addition, micro‐level data on wages suggest no obvious downward rigidity in the firm's wage bill, downward rigidity in individual wages notwithstanding. As a consequence, downward nominal wage rigidity may not be enough to offset deflationary pressures in the current situation.     

Globalization and Changing Inflation Dynamics in China

This article investigates the changing impact of economic globalization on inflation in China over the post-reform era. We construct an inflation dynamics model with globalization factors from microeconomic foundations. Empirical results with quarterly data spanning from 1984 to 2012 show that in 1994 there was a significant structural change in the inflation dynamics model, after which China’s inflation responded more significantly to foreign economic slack while the slope of the inflation-domestic slack relation reduced substantively.     

Heterogeneous Inflation Expectations and Learning

Using the panel component of the Michigan Survey of Consumers, we estimate a learning model of inflation expectations, allowing for heterogeneous use of private information and lifetime inflation experience. Life experience inflation has a significant impact on individual expectations, but only for 1‐year‐ahead inflation. Public information is substantially more relevant for longer horizon expectations. Even controlling for life experience inflation and public information, idiosyncratic information explains a nontrivial proportion of the inflation forecasts of agents. Women, ethnic minorities, and less educated agents have a higher degree of heterogeneity in their idiosyncratic information, and give less importance to recent movements in inflation.     

通胀预期与物价变化关系实证研究

本文分析了通胀预期的表现形式,重点探讨了通胀预期与物价变化的关系。研究结果显示,通胀预期对不同种类的价格影响程度是不同的,对消费品价格变化影响较小,CPI对通胀预期缺乏敏感;对企业生产品价格影响程度远大于对消费品价格的影响。     

Inflation Announcements and Social Dynamics

We propose a new framework for understanding the effectiveness of central bank announcements when firms have heterogeneous inflation expectations. Expectations are updated through social dynamics and, with heterogeneity, not all firms choose to operate, putting downward pressure on realized inflation. Our model rationalizes why countries stuck at the zero lower bound have had a hard time increasing inflation without being aggressive. The same model also predicts that announcing an abrupt target to disinflate will cause inflation to undershoot the target, whereas announcing gradual targets will not. We present new empirical evidence that corroborates this prediction.     

Directional Accuracy of Urban Consumers’ Inflation Forecasts in China

We evaluate the directional accuracy of inflation forecasts based on the survey data of urban savings account holders in China. By using a new market-timing test, we show that the urban consumers’ expectations of inflation are not a useful predictor of the overall consumer price index (CPI) and the urban household CPI (U-CPI) in China. However, after our in-depth analysis using the inflation rate of each category in the U-CPI basket, we find that the consumers’ forecasts are useful in predicting the movement of the residence component in the U-CPI basket since the third quarter of 2009.     

Inflation Dynamics: The Role of Expectations

This paper estimates the Phillips curve allowing for a simultaneous role of rational and survey expectations. We consider both a reduced form and a structural specification of the Phillips curve. The results suggest that survey expectations can be a statistically significant component of firms' expectations and inflation dynamics. However, rational expectations continue to play a dominant role.     

Measuring Inflation Anchoring and Uncertainty: A U.S. and Euro Area Comparison

We use several U.S. and euro‐area surveys of professional forecasters to estimate a dynamic factor model of inflation featuring time‐varying uncertainty. We obtain survey‐consistent distributions of future inflation at any horizon, both in the U.S. and the euro area. Equipped with this model, we propose a novel measure of the anchoring of inflation expectations that accounts for inflation uncertainty. Our results suggest that following the Great Recession, inflation anchoring improved in the United States, while mild de‐anchoring occurred in the euro area. As of our sample end, both areas appear to be almost equally anchored.     

Inflation Expectations and Risk Premiums in an Arbitrage‐Free Model of Nominal and Real Bond Yields

Differences between yields on comparable‐maturity U.S. Treasury nominal and real debt, the so‐called breakeven inflation (BEI) rates, are widely used indicators of inflation expectations. However, better measures of inflation expectations could be obtained by subtracting inflation risk premiums (IRP) from the BEI rates. We provide such decompositions using an affine arbitrage‐free model of the term structure that captures the pricing of both nominal and real Treasury securities. Our empirical results suggest that long‐term inflation expectations have been well anchored over the past few years, and IRP, although volatile, have been close to zero on average.     

Unstable Inflation Targets

This paper studies long‐run inflation targets and stability in an imperfect information environment. When central banks set an inflation target that is not fully communicated, agents draw inferences about inflation from recent data and remain alert to structural change by forming expectations from a forecasting model that is estimated via discounted least squares. Inflation targets can lead agents' beliefs to depart from rational expectations through two channels. First, implementing a higher inflation target can lead to overshooting. Second, there can be nearly self‐fulfilling inflation, disinflation, or deflation that arises as an endogenous response to shocks. Policy implications for implementing a higher target without deanchoring expectations are discussed.     

High-Frequency Changes in Shopping Behaviours,Promotions and the Measurement of Inflation: Evidence from the Great Lockdown*

We use real-time scanner data in Great Britain during the COVID-19 pandemic to investigate the drivers of the inflationary spike at the beginning of lockdown and to quantify the impact of high-frequency changes in shopping behaviours and promotions on inflation measurement. Although changes in product-level expenditure shares were unusually high during lockdown, we find that the induced bias in price indices that do not account for expenditure switching is not larger than in prior years. We also document substantial consumer switching towards online shopping and across retailers, but show this was not a key driver of the inflationary spike. In contrast, a reduction in price and quantity promotions was key to driving higher inflation, and lower use of promotions by low-income consumers explains why they experienced moderately lower inflation. Overall, changes in shopping behaviours played only a minor role in driving higher inflation during lockdown; higher prices were the main cause, in particular through a reduced frequency of promotions.     

资产价格波动的通货膨胀预期效应——基于房地产市场的实证分析

通过对房地产市场的实证研究,证实了资产市场资产价格的变化会影响到人们对未来经济形势的判断,进而影响到公众对未来消费品市场价格的判断,根据“预期自我实现”的原理,会对实际的通货膨胀或者通货紧缩产生影响。研究表明,房地产市场价格走势对通货膨胀预期的影响,要大于房地产市场资金变化对通胀预期的影响,所以监管层要管理好通货膨胀和通货膨胀预期,就要加强对资产市场尤其是房地产市场的监控,防止房价的大起大落。     

Survey Measures of Expected Inflation and the Inflation Process

The accuracy of inflation forecasts obtained from household and professional surveys has deteriorated noticeably of late, to the extent that a simple autoregressive specification outperforms survey forecasts. The decline in (absolute and relative) accuracy has taken place at about the same time as an apparent change in the inflation process. Projections of household forecasts on realized inflation suggests that households have not recognized this change. For the professionals, projections of expected inflation on headline inflation have changed, but on core inflation have not. By contrast, projections of realized headline inflation on core have changed sharply.     

The Role of Media for Inflation Forecast Disagreement of Households and Professional Forecasters

This paper investigates the effects of media coverage about consumer price inflation on inflation forecast disagreement of German households and professional forecasters. We adopt a Bayesian learning model in which media coverage of inflation affects forecast disagreement by influencing information sets as well as predictor choice. Our empirical results show that disagreement of households depends on the heterogeneity of story content and on the reporting intensity, especially of news on rising inflation. Disagreement of professional forecasters does not depend on media coverage. With respect to the influence of macroeconomic variables, we provide evidence that disagreement of professional forecasters primarily depends on the inflation rate and on inflation volatility. The response of households to inflation is much less pronounced.