The Price Is Right: Updating Inflation Expectations in a Randomized Price Information Experiment

By Olivier Armantier, Scott Nelson, Giorgio Topa, Wilbert van der Klaauw, basit. zafar. Review of Economics and Statistics, 2016

194 citations recorded by the source corpus.

Abstract Using a unique, randomized information experiment embedded in a survey, this paper investigates how consumers’ inflation expectations respond to new information. We find that respondents, on average, update their expectations in response to (certain types of) information, and do so sensibly, in a manner consistent with Bayesian updating. As a result of information provision, the distribution of inflation expectations converges toward its center and cross-sectional disagreement declines. We document heterogeneous information processing by gender and present suggestive evidence of respondents forecasting under asymmetric loss. Our results provide support for expectation-formation models in which agents form expectations rationally but face information constraints.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/60d004b4ca652cff05e04dd49bc9cc7ff71533fa

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Economics and Econometrics

1. Michael Weber
2. Olivier Coibion
3. Y. Gorodnichenko
4. basit. zafar
5. Dimitris Georgarakos
6. Wilbert van der Klaauw
7. Giorgio Topa
8. G. Kenny

Citations in the corpus

• Coronavirus Fears and Macroeconomic Expectations (2020, unknown): “This paper is also related to a broader recent literature that uses online experiments or surveys to study consumer expectations formation and response to information or Fed communication (Armantier et al., 2016; Binder and Rodrigue, 2018; Binder, 2020b; Coibion et al., 2020a).”
• HOW DOES CONSUMPTION RESPOND TO NEWS ABOUT INFLATION? FIELD EVIDENCE FROM A RANDOMIZED CONTROL TRIAL (2019, unknown): “The strong effect of the inflation treatment on inflation expectations is consistent with earlier work applying information treatments, such as Armantier et al. (2016), Cavallo, Cruces and Perez-Truglia (2017) or Coibion, Gorodnichenko and Weber (2021).”
• The Effect of Macroeconomic Uncertainty on Household Spending (2021, background): “Armantier et al. (2016) and Cavallo, Cruces and Perez-Truglia (2017) study how different types of information about inflation or monetary policy affect households’ inflation expectations. Coibion, Gorodnichenko and Weber (2019) and Coibion et al. (2019) follow a similar strategy to show that exogeno”
• Monetary Policy Communications and Their Effects on Household Inflation Expectations (2018, unknown): “(2016), who provide information about past food inflation and inflation forecasts of professional forecasters to a subset of individuals in a controlled survey experiment to study individuals’ forecast revision, andCavallo, Cruces, and Perez-Truglia (2017), whoprovide a random subset of the populati”
• How Do Firms Form Their Expectations? New Survey Evidence (2018, unknown): “Armantier et al. (2016) document a similar distribution of perception errors on the part of U.”
• An Overview of the Survey of Consumer Expectations (2016, background): “Furthermore, our research indicates that consumers act on their reported inflation expectations in sensible ways (Armantier et al. 2015) and that they update their inflation expectations meaningfully when provided with arguably inflation-relevant information (Armantier et al. 2016).”