Inflation Expectations, Learning, and Supermarket Prices: Evidence from Survey Experiments

Cavallo, Alberto; Cruces, Guillermo; Perez-Truglia, Ricardo

Abstract

Information frictions play a central role in the formation of household inflation expectations, but there is no consensus about their origins. We address this question with novel evidence from survey experiments. We document two main findings. First, individuals in low inflation contexts have significantly weaker priors about the inflation rate. This finding suggests that rational inattention may be an important source of information frictions. Second, cognitive limitations also appear to be a source of information frictions: even when information about inflation statistics is available, individuals still place a significant weight on inaccurate sources of information, such as their memories of the price changes of the supermarket products they purchase. We discuss the implications of these findings for macroeconomic models and policymaking.

Citation

Cavallo, A., Cruces, G., & Perez-Truglia, R. (2017). Inflation Expectations, Learning, and Supermarket Prices: Evidence from Survey Experiments. American Economic Journal: Macroeconomics, 9(3), 1-35. https://doi.org/10.1257/mac.20150147

• Journal Article Type: Article
• Acceptance Date: Jan 2, 2017
• Online Publication Date: Jul 31, 2017
• Publication Date: 2017-07
• Deposit Date: Aug 7, 2019
• Publicly Available Date: Aug 7, 2019
• Journal: American Economic Journal: Macroeconomics
• Print ISSN: 1945-7707
• Electronic ISSN: 1945-7715
• Publisher: American Economic Association
• Peer Reviewed: Peer Reviewed
• Volume: 9
• Issue: 3
• Pages: 1-35
• DOI: https://doi.org/10.1257/mac.20150147
• Public URL: https://nottingham-repository.worktribe.com/output/2357901
• Additional Information: Copyright 2019 American Economic Association. All rights reserved.