Theformationofinflationexpectationsanempirical.pdf

The formation of inflation expectations: an empirical analysis for the UK David G. Blanchflower Bruce V. Rauner Professor of Economics Dartmouth College, University of Stirling, NBER, IZA and Member of the Monetary Policy Committee Bank of England Conall Mac Coille Monetary Policy Committee Unit Bank of England 14-15 May 2009 Banco do Brasil X1 Annual Inflation Targeting Seminar Rio de Janeiro Abstract This paper uses micro-data from three surveys for the UK to consider how individuals form inflation expectations. Generally, we find significant non-response bias in all surveys, with non- respondents especially likely to be young, female, less educated and with lower incomes. A number of demographic generalizations can be made based on the surveys. Inflation expectations rise with age, but the more highly educated and home owners tend to have lower inflation expectations. These groups are also more likely to be accurate in their estimates of official inflation twelve months ahead, and have less backward-looking expectations. JEL classification: D1, D8, E3, E4, E5 Keywords: Inflation, Expectations, Macroeconomics, Monetary Policy We thank Tim Besley, Roger Kelly, Annamaria Lusardi and Richard Windram for helpful d