We study how individuals’ memories of inflation shape their expectations about future inflation using both surveys and laboratory experiments. Recalling having lived through prior disinflations has pronounced effects on how long-lived people expect the current inflation episode to last. Information treatments in which we show people prior disinflationary experiences similarly strongly reduce inflation expectations of individuals on average and are often recalled as inflation memories months later. We also show that when people try to forecast inflation in the lab, the inflation dynamics in the game can affect their beliefs much like the inflation experienced in real life. Methodologically, we compare and contrast surveys and lab experiments and discuss the pros and cons of each method, emphasizing the general consistency across the two methodologies.
Authors
- Acknowledgements & Disclosure
- We are grateful to seminar participants at many institutions for their comments. We are grateful to the Faculty of Economics & Business of the University of Amsterdam for financing this project through the Research Priorities Area (RPA) ‘Complex Human Systems Lab.’ The experiment has been pre-registered on the AEA RCT registry under project number AEARCTR-0010417 and has been granted ethical approval by the Ethics Committee Economics and Business at the University of Amsterdam under project number EB-522. Ordering of authors is randomized. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
- DOI
- https://doi.org/10.3386/w31996
- Published in
- United States of America
