NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Disagreement about Inflation Expectations

N. Gregory Mankiw, Ricardo Reis, Justin Wolfers

NBER Working Paper No. 9796
Issued in June 2003
NBER Program(s):   EFG   ME

Analyzing 50 years of inflation expectations data from several sources, we document substantial disagreement among both consumers and professional economists about expected future inflation. Moreover, this disagreement shows substantial variation through time, moving with inflation, the absolute value of the change in inflation, and relative price variability. We argue that a satisfactory model of economic dynamics must speak to these important business cycle moments. Noting that most macroeconomic models do not endogenously generate disagreement, we show that a simple sticky-information' model broadly matches many of these facts. Moreover, the sticky-information model is consistent with other observed departures of inflation expectations from full rationality, including autocorrelated forecast errors and insufficient sensitivity to recent macroeconomic news.

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Document Object Identifier (DOI): 10.3386/w9796

Published: Disagreement about Inflation Expectations, N. Gregory Mankiw, Ricardo Reis, Justin Wolfers. in NBER Macroeconomics Annual 2003, Volume 18, Gertler and Rogoff. 2004

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