Learning from potentially-biased statistics: Household inflation perceptions and expectations in Argentina

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

Abstract

When forming expectations, households may be influenced by perceived bias in the information they receive. In this paper, we study how individuals learn from potentially biased statistics using data from both a natural experiment and a survey experiment during a period (2007-15) when the government of Argentina was manipulating official inflation statistics. This period is interesting because attention was being given to inflation information and both official and unofficial statistics were available. Our evidence suggests that, rather than ignoring biased statistics or naively accepting them, households react in a sophisticated way, as predicted by a Bayesian learning model. We also find evidence of an asymmetric reaction to inflation signals, with expectations changing more when the inflation rate rises than when it falls. These results could also be useful for understanding the formation of inflation expectations in less extreme contexts than Argentina, such as the United States and Europe, where experts may agree that statistics are unbiased but households are not. H ousehold inflation expectations play a key role in models of consumption decisions and the real effects of monetary policy, yet little is known about how these expectations are formed. In recent years, a growing body of empirical literature has been providing evidence about how individuals use information to form their inflation expectations. For example, in Cavallo, Cruces, and Perez-Truglia (2014), we show that individuals learn from both inflation statistics and supermarket prices. In this paper, we use data from a period of manipulated official statistics in Argentina to study the degree of sophistication in this learning process and the role of trust in statistics.

Citation

Cavallo, A., Cruces, G., & Perez-Truglia, R. (2016). Learning from potentially-biased statistics: Household inflation perceptions and expectations in Argentina. Brookings Papers on Economic Activity, Spring 2016, 59-108

• Journal Article Type: Article
• Acceptance Date: Feb 26, 2016
• Online Publication Date: Mar 1, 2016
• Publication Date: Mar 1, 2016
• Deposit Date: Oct 12, 2020
• Journal: Brookings Papers on Economic Activity
• Print ISSN: 0007-2303
• Publisher: Brookings Institution Press
• Peer Reviewed: Peer Reviewed
• Volume: Spring 2016
• Pages: 59-108
• Public URL: https://nottingham-repository.worktribe.com/output/4959121
• Publisher URL: https://www.brookings.edu/bpea-articles/learning-from-potentially-biased-statistics-household-inflation-perceptions-and-expectations-in-argentina/