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Abstract We compare causal effects of forward guidance about future interest rates on households’ expectations of inflation and nominal mortgage rates to the effects of communication about inflation in a randomized control trial using more than 20,000 U.S. consumers in the Nielsen Homescan Panel. We elicit consumers’ expectations, and then provide 22 different forms of information regarding past, current, and/or future interest rates and inflation. Information treatments about current or future interest rates all have similar and offsetting effects on interest rate and inflation expectations, yielding limited pass-through into perceived real rates. Information about mortgage rates has much more powerful effects on interest rate perceptions, with no offsetting effects on inflation expectations, thereby delivering much larger changes in perceived real rates. Revisions in perceived real rates causally lead to changes in the ex-post purchases of durable goods by households.
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Perceived and Expected Rates of Inflation of US Firms
The seminal work of Jonung (1981) showed that households' perceptions of inflation are the strongest predictor of households' inflation expectations. This fact has been a key ingredient for testing and developing theoretical models of how economic agents form expectations (e.g., the famous Lucas (1972) island model). However, little is known about whether perceptions play a similar role for firms. Using a new survey of American CEOs, we document that inflation perceptions shape the inflation expectations of firms just as Jonung (1981) found for households. These results suggest that information rigidities apply not only for households but also for CEOs.
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- Award ID(s):
- 1919307
- PAR ID:
- 10437859
- Date Published:
- Journal Name:
- AEA Papers and Proceedings
- Volume:
- 113
- ISSN:
- 2574-0768
- Page Range / eLocation ID:
- 52 to 55
- Format(s):
- Medium: X
- Sponsoring Org:
- National Science Foundation
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- Free Publicly Accessible Full Text
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Accepted Manuscript1.0
- Journal Article:
- https://doi.org/10.1257/pandp.20231034
