Cognitive Abilities and Inflation Expectations
AbstractCognitive abilities help explain the large cross-sectional variation in inflation expectations at the household level. But which type of cognitive abilities are important? We find that not only quantitative abilities but also logical and verbal abilities are important to explain the accuracy and plausibility of households' inflation expectations. We discuss the channels through which different forms of cognition might shape households' abilities to forecast future macroeconomic variables. We also draw implications for the effectiveness of policies that aim to manage households' expectations.
CitationD'Acunto, Francesco, Daniel Hoang, Maritta Paloviita, and Michael Weber. 2019. "Cognitive Abilities and Inflation Expectations." AEA Papers and Proceedings, 109: 562-66. DOI: 10.1257/pandp.20191050
- D12 Consumer Economics: Empirical Analysis
- D84 Expectations; Speculations
- E31 Price Level; Inflation; Deflation
- E37 Prices, Business Fluctuations, and Cycles: Forecasting and Simulation: Models and Applications