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Anchoring of Consumers' Inflation Expectations: Evidence from Microdata

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  • Dräger, Lena
  • Lamla, Michael

Abstract

In this paper we explore the degree of anchoring of inflation expectations of consumers by analysing the comovement in short- and long-run expectations. If inflation expectations are firmly anchored, a transitory shock should influence the short-run inflation expectations but not effect long-run inflation expectations. Utilizing the University of Michigan Survey of Consumer s rotating panel microstructure, we can identify and analyse to which extend individuals adjust their short- and long-run inflation expectations within six months. Our results indicate that inflation expectations became more anchored over time. Interestingly, the comovement fell substantially after 1996 which is characterised by the pre-preemptive tightening of the FED and not with the Volker Disinflation. Analysing the probability of revising long- and short-run expectations simultaneously, we find no such structural change in time. Hence, while the comovement has become smaller over time the probability of adjusting long- and short-run expectations has remained unaffected. Looking at the current economic crises the comovement dropped between 2008-09 and since then is rising again. Regarding the possible determinants of the strength of comovement we find that high inflation, higher levels of expected inflation of professional forecasters and news on inflation as well as news on fiscal deficts lead to a greater comovement and hence a lower anchoring of inflation expectations. On the other hand tighter monetary policy improves the degree of anchoring.

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  • Dräger, Lena & Lamla, Michael, 2013. "Anchoring of Consumers' Inflation Expectations: Evidence from Microdata," VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79889, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc13:79889
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    Cited by:

    1. Gabriele Galati & Richhild Moessner & Maarten van Rooij, 2023. "The anchoring of long-term inflation expectations of consumers: insights from a new survey," Oxford Economic Papers, Oxford University Press, vol. 75(1), pages 96-116.
    2. Lena Dräger & Ulrich Fritsche, 2013. "Don't Worry, Be Right! Survey Wording Effects on In flation Perceptions and Expectations," Macroeconomics and Finance Series 201308, University of Hamburg, Department of Socioeconomics.
    3. Jonas Dovern & Geoff Kenny, 2020. "Anchoring Inflation Expectations in Unconventional Times: Micro Evidence for the Euro Area," International Journal of Central Banking, International Journal of Central Banking, vol. 16(5), pages 309-347, October.
    4. Paul Hubert & Becky Maule, 2016. "Policy and Macro Signals as Inputs to Inflation Expectation Formation," SciencePo Working papers Main hal-03459462, HAL.
    5. Michael Weber & Daniel Hoang & Francesco D'Acunto, 2015. "Inflation Expectations and Consumption Expenditure," 2015 Meeting Papers 1266, Society for Economic Dynamics.
    6. Gabriele Galati & Richhild Moessner & Maarten van Rooij, 2021. "Anchoring of consumers’ long-term euro area inflation expectations during the pandemic," Working Papers 715, DNB.
    7. Francesco D'Acunto & Daniel Hoang & Michael Weber & Michael Weber, 2016. "Unconventional Fiscal Policy, Inflation Expectations, and Consumption Expenditure," CESifo Working Paper Series 5793, CESifo.
    8. Łyziak, Tomasz & Paloviita, Maritta, 2017. "Anchoring of inflation expectations in the euro area: Recent evidence based on survey data," European Journal of Political Economy, Elsevier, vol. 46(C), pages 52-73.
    9. repec:hal:spmain:info:hdl:2441/79hle3i1b69dqrocqsjarh6lb1 is not listed on IDEAS
    10. repec:spo:wpmain:info:hdl:2441/79hle3i1b69dqrocqsjarh6lb1 is not listed on IDEAS
    11. Buono, Ines & Formai, Sara, 2018. "New evidence on the evolution of the anchoring of inflation expectations," Journal of Macroeconomics, Elsevier, vol. 57(C), pages 39-54.
    12. Kenny, Geoff & Dovern, Jonas, 2017. "The long-term distribution of expected inflation in the euro area: what has changed since the great recession?," Working Paper Series 1999, European Central Bank.

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    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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