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Asymmetric information and misaligned inflation expectations

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  • Han, Zhao

Abstract

Recent survey evidence reveals misaligned inflation expectations among economic agents. While households associate higher expected inflation with lower output growth, professional forecasters link higher future inflation to higher output growth. Firms’ expectations display neither negative nor positive correlations. We explain such patterns jointly in a general equilibrium New Keynesian framework. Asymmetric information arises naturally as (i) households and firms receive imperfect, asymmetric information about supply and demand shocks, and (ii) the central bank learns from equilibrium outcomes (i.e., output and inflation) as opposed to the private sector. Survey data help uncover the magnitudes of information frictions among economic agents.

Suggested Citation

  • Han, Zhao, 2024. "Asymmetric information and misaligned inflation expectations," Journal of Monetary Economics, Elsevier, vol. 143(C).
    • Handle: RePEc:eee:moneco:v:143:y:2024:i:c:s0304393223001253
    DOI: 10.1016/j.jmoneco.2023.10.010
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    More about this item

    Keywords

    Inflation dynamics; Expectation formation; Survey data; Business cycles; Monetary policy; Central bank communication;
    All these keywords.

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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