Work

How Inflation Expectations De-Anchor: The Role of Selective Memory Cues

Year: 2024

Type: report

Abstract: In a model of memory and selective recall, household inflation expectations remain rigid when inflation is anchored but exhibit sharp instability during inflation surges, as similarity prompts retrieval of forgotten high-inflation experiences.Using data from the New York Fed's Survey of Consumer Expectations and the University of Michigan's Consumer Survey, we show that similarity can quantitatively account for the sharp post-pandemic rise in inflation expectations, particularly among the elderly.The memory-based model also accounts for how people estimate future inflation ranges and why they neglect infrequent experiences when forming point expectations.These predictions are likewise supported by the data.

Source: National Bureau of Economic Research

DOI: 10.3386/w32633

Authors: Nicola Gennaioli, Marta Leva, Raphael Schoenle, Andrei Shleifer

Institutions: Bocconi University, Brandeis University, National Bureau of Economic Research, Harvard University, European Corporate Governance Institute

Language: English

Topic: Monetary Policy and Economic Impact

Subfield: General Economics, Econometrics and Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

Funders: Harvard University, Brandeis University, Università Bocconi

OpenAlex ID: W4400224369

Cites: 46

Cited by: 19

Related to: 10