How to limit the spillover from an inflation surge to inflation expectations?

Lena Dräger; Michael J. Lamla; Damjan Pfajfar

doi:10.1016/j.jmoneco.2023.12.004

Details

Original language	English
Journal	Journal of Monetary Economics
Early online date	19 Dec 2023
Publication status	E-pub ahead of print - 19 Dec 2023

Abstract

Using a randomized control trial on German consumers we show that information about rising inflation increases inflation expectations. This initial increase in expectations can be mitigated by providing forecasts of inflation. Information about (future) inflation affects the whole term structure of inflation expectations, where the effects are smaller for longer-run expectations. This information also causes changes in consumption and savings decisions. In subsequent months—when consumers realize that inflation is much higher than the provided forecasts—they reverse the reliance on information about inflation forecasts and rely again more on their initial priors.

Keywords

Inflation surge, Randomized control trial, Short-run and long-run inflation expectations, Survey experiment

ASJC Scopus subject areas

Economics, Econometrics and Finance(all)
Finance
Economics, Econometrics and Finance(all)
Economics and Econometrics

Cite this

How to limit the spillover from an inflation surge to inflation expectations? / Dräger, Lena; Lamla, Michael J.; Pfajfar, Damjan.
In: Journal of Monetary Economics, 19.12.2023.

Research output: Contribution to journal › Article › Research › peer review

Dräger, L, Lamla, MJ & Pfajfar, D 2023, 'How to limit the spillover from an inflation surge to inflation expectations?', Journal of Monetary Economics. https://doi.org/10.1016/j.jmoneco.2023.12.004

Dräger, L., Lamla, M. J., & Pfajfar, D. (2023). How to limit the spillover from an inflation surge to inflation expectations? Journal of Monetary Economics. Advance online publication. https://doi.org/10.1016/j.jmoneco.2023.12.004

Dräger L, Lamla MJ, Pfajfar D. How to limit the spillover from an inflation surge to inflation expectations? Journal of Monetary Economics. 2023 Dec 19. Epub 2023 Dec 19. doi: 10.1016/j.jmoneco.2023.12.004

Dräger, Lena ; Lamla, Michael J. ; Pfajfar, Damjan. / How to limit the spillover from an inflation surge to inflation expectations?. In: Journal of Monetary Economics. 2023.

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title = "How to limit the spillover from an inflation surge to inflation expectations?",

abstract = "Using a randomized control trial on German consumers we show that information about rising inflation increases inflation expectations. This initial increase in expectations can be mitigated by providing forecasts of inflation. Information about (future) inflation affects the whole term structure of inflation expectations, where the effects are smaller for longer-run expectations. This information also causes changes in consumption and savings decisions. In subsequent months—when consumers realize that inflation is much higher than the provided forecasts—they reverse the reliance on information about inflation forecasts and rely again more on their initial priors.",

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author = "Lena Dr{\"a}ger and Lamla, {Michael J.} and Damjan Pfajfar",

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