Disagreement about Inflation Expectations

Analyzing 50 years of inflation expectations data from several sources, we document substantial disagreement among both consumers and professional economists about expected future inflation. This disagreement shows substantial variation over time, moving with inflation, the absolute value of the cha...

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Bibliographic Details
Published in:NBER macroeconomics annual 2003, Vol.18, p.209-248
Main Authors: Mankiw, N. Gregory, Reis, Ricardo, Wolfers, Justin
Format: Article
Language:English
Subjects:
Anticipated inflation
Consumer surveys
Economic expectations
Economic forecasts
Economic models
Economic surveys
Inflation
Inflation rates
Macroeconomic modeling
Macroeconomics
Modeling
Statistical forecasts
Studies
Time series forecasting
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Summary:Analyzing 50 years of inflation expectations data from several sources, we document substantial disagreement among both consumers and professional economists about expected future inflation. This disagreement shows substantial variation over time, moving with inflation, the absolute value of the change in inflation, and relative price variability. We argue that a satisfactory model of economic dynamics must address these important business-cycle moments. Noting that most macroeconomic models do not endogenously generate disagreement, we show that a simple sticky-information model broadly matches many of these facts. Moreover, the sticky-information model is consistent with other observed departures of inflation expectations from full rationality, including autocorrelated forecast errors and insufficient sensitivity to recent macroeconomic news.
ISSN:0889-3365
1537-2642
DOI:10.1086/ma.18.3585256