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News on Inflation and the Epidemiology of Inflation Expectations

2013; Wiley; Volume: 45; Issue: 6 Linguagem: Inglês

10.1111/jmcb.12043

1538-4616

Damjan Pfajfar, Emiliano Santoro,

Market Dynamics and Volatility

Journal of Money, Credit and BankingVolume 45, Issue 6 p. 1045-1067 ARTICLE News on Inflation and the Epidemiology of Inflation Expectations DAMJAN PFAJFAR, DAMJAN PFAJFARSearch for more papers by this authorEMILIANO SANTORO, EMILIANO SANTOROSearch for more papers by this author DAMJAN PFAJFAR, DAMJAN PFAJFARSearch for more papers by this authorEMILIANO SANTORO, EMILIANO SANTOROSearch for more papers by this author First published: 15 August 2013 https://doi.org/10.1111/jmcb.12043Citations: 56 We would like to thank the Editor, Pok-sang Lam, two anonymous referees, and Tiago Cavalcanti, Jagjit Chadha, Roberta Distante, Chryssi Giannitsarou, Sean Holly, Cars Hommes, Seppo Honkapohja, Ivan Petrella, and other participants in seminars and presentations at the University of Cambridge, Catholic University of Milan, University of Copenhagen, the Federal Reserve Board, Koc University, New Orleans University, Norges Bank, the IUE Conference (2007), the MMF Conference (2007), the Midwest Macroeconomics Meetings (2012), and the Workshop on Models of Expectation Formation and the Role of the News Media for Information Transmission at the University of Hamburg (2012) for their constructive comments. All remaining errors are our own. Read the full textAboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Share a linkShare onEmailFacebookTwitterLinkedInRedditWechat Abstract This paper examines the nexus between news coverage on inflation and households’ inflation expectations. In doing so, we test the epidemiological foundations of the sticky information model (Carroll 2003, 2006). We use both aggregate and household-level data from the Survey Research Center at the University of Michigan. We highlight a fundamental disconnection among news on inflation, consumers’ frequency of expectation updating, and the accuracy of their expectations. Our evidence provides at best weak support to the epidemiological framework, as most of the consumers who update their expectations do not revise them toward professional forecasters’ mean forecast. LITERATURE CITED Blinder, Alan S., and Alan B. Krueger. (2004) “What Does the Public Know about Economic Policy, and How Does It Know It?” Brookings Papers on Economic Activity, 35, 327–97. Carroll, Christopher D. (2003) “Macroeconomic Expectations of Households and Professional Forecasters.” Quarterly Journal of Economics, 118, 269–98. Carroll, Christopher D. (2006) “ The Epidemiology of Macroeconomic Expectations.” In The Economy as an Evolving Complex System III, edited by Lawrance Blume, and Steven N. Durlauf, pp. 5–30. Oxford: Oxford University Press. Croushore, Dean. 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