Inattentive Inflation Expectations

Abstract

I propose a model of expectation formation based on shopping experiences. The model decomposes the cross-sectional dispersion of household’s beliefs about inflation in three sources: Heterogeneity in consumption baskets, heterogeneity in purchasing frequency and heterogeneity in information upon purchase due to rational inattention. I use microdata on household’s inflation expectations and their consumption expenditures to estimate structurally the information acquisition technology and decompose the observed heterogeneity in inflation expectations on these three channels. Preliminary results suggest consumption heterogeneity accounts for less than a third of the observed heterogeneity, and that the attention structure of household’s is sparse and allocates little attention to the evolution of most prices. The big exception being the price of gasoline, as its volatility is an order of magnitude larger than all other prices.

Publication
Work in Progress
Ángelo Gutiérrez-Daza
Ángelo Gutiérrez-Daza
Ph.D. Student

I’m a PhD candidate in Economics at Universitat Pompeu Fabra and the Barcelona GSE. My research interests include macroeconomics, information acquisition, expectation formation, and computational economics.

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