The formation of inflation expectations: an empirical analysis for the UK
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.
We thank Tim Besley, Roger Kelly, Annamaria Lusardi and Richard Windram for helpful discussions and Helen Lawton for invaluable research assistance. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.