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Inflation Levels and (In)Attention
Inflation expectations are key determinants of economic activity and are central to the current policy debate about whether inflation expectations will remain anchored in the face of recent pandemic-related increases in inflation. This paper explores evidence of inattention by constructing two different measures of consumers’ inattention and documents greater inattention when inflation is low. This suggests that there is indeed a risk of an acceleration in the increases in inflation expectations if actual inflation remains high.
Inflation Thresholds and Inattention
Inflation expectations are key to economic activity, and in the current economic climate of a heated labor market, they are central to the policy debate. At the same time, a growing literature on inattention suggests that individuals, and therefore individual behavior, may not be sensitive to changes in inflation when it is low. This paper explores evidence of such inattention by constructing three different measures based on the University of Michigan’s Survey of Consumers 1-year ahead inflation expectations. Exploring inflation thresholds of 2, 3, and 4 percent, our findings are ...
Tell Me Something I Don't Already Know: Learning in Low- and High-Inflation Settings
Using randomized control trials (RCT) applied over time in different countries, we study how the economic environment affects how agents learn from new information. We show that as inflation has risen in developed economies, both households and firms have become more attentive and informed about inflation, leading them to respond less to exogenously provided information about inflation and monetary policy. This observation holds for both firms and households. We also study the effects of RCTs in countries where inflation has been consistently high (Uruguay) and low (New Zealand) as well as ...
IDENTITY THEFT AS A TEACHABLE MOMENT
SUPERCEDES 14-28. This paper examines how a negative shock to the security of personal finances due to severe identity theft changes consumer credit behavior. Using a unique data set of linked consumer credit data and alerts indicating identity theft, we show that the immediate effects of fraud on consumers are typically negative, small, and transitory. After those immediate effects fade, identity theft victims experience persistent, positive changes in credit characteristics, including improved risk scores (indicating lower default risk). We argue that these changes are consistent with ...
Financial Consequences of Severe Identity Theft in the U.S.
We examine how a negative shock from severe identity theft affects consumer credit market behavior in the United States. We show that the immediate effects of severe identity theft on credit files are typically negative, small, and transitory. After those immediate effects fade, identity theft victims experience persistent increases in credit scores and declines in reported delinquencies, with a significant proportion of affected consumers transitioning from subprime-to-prime credit scores. Those consumers take advantage of their improved creditworthiness to obtain additional credit, ...