Finance and Economics Discussion Series (FEDS)
November 2014
Inflation Experience and Inflation Expectations: Dispersion and Disagreement Within Demographic Groups
Abstract:
Using consumption data from the Consumer Expenditure Survey, I document persistent differences across demographic groups in the dispersion of household-specific rates of inflation. Using survey data on inflation expectations, I show that demographic groups with greater dispersion in experienced inflation also disagree more about future inflation. I argue that these results can be rationalized from the perspective of an imperfect information model in which idiosyncratic inflation experience serves as a signal about aggregate inflation. These empirical regularities pose a challenge to several other popular models of the expectations formation process of households.
Keywords: Inflation, expectations, inflation experience
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