Heterogeneity in Household Inflation Expectations: Policy Implications

Doh, Taeyoung; Lee, JiHyung; Park, Woong Yong

doi:10.18651/RWP2024-06

Working Paper

Heterogeneity in Household Inflation Expectations: Policy Implications

Abstract: We empirically characterize the heterogeneity in the conditional distribution of household inflation expectations across demographic groups using the Survey of Consumer Expectations and investigate how monetary policy shocks affect the conditional distribution. We find that across all demographic groups, the peak of the group-specific distribution of household inflation expectations aligns closely with the Federal Reserve’s 2 percent target. However, we also find substantial heterogeneity both within and across groups, primarily on the right end of the distribution. Nevertheless, we show that a contractionary monetary policy shock identified by high-frequency financial market response reduces inflation expectations of households more vulnerable to the risk of unanchoring.

Keywords: Household Inflation Expectations Project (HIEP); monetary policy; high frequency identification; quantile regression;

JEL Classification: E31; E52; E58;

https://doi.org/10.18651/RWP2024-06