← Search

The Review of Economics and Statistics Vol. 98 No. 3 2016

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

Olivier Armantier1; Scott Nelson2,3; Giorgio Topa1; Wilbert van der Klaauw; Basit Zafar4,1

1 Federal Reserve Bank of New York · 2 Moscow Institute of Thermal Technology · 3 Massachusetts Institute of Technology · 4 Federal Reserve

open access

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.

DOI
10.1162/rest_a_00499
Volume
98
Issue
3
Pages
503-523
Language
en
Sources
openalex crossref

Cite