Working Paper

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;

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: Finance and Economics Discussion Series

Publication Date: 2014-10-22

Number: 2014-89

Pages: 33 pages