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THE FORMATION OF CONSUMER INFLATION EXPECTATIONS: NEW EVIDENCE FROM JAPAN'S DEFLATION EXPERIENCE
Author(s) -
Diamond Jess,
Watanabe Kota,
Watanabe Tsutomu
Publication year - 2020
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/iere.12423
Subject(s) - deflation , economics , inflation (cosmology) , monetary economics , real interest rate , keynesian economics , positive correlation , monetary policy , medicine , physics , theoretical physics
Abstract Using a new data set, we investigate the relationship between the inflation experience and expectations of households in Japan, focusing on the post‐1995 deflationary era. Our first finding is that inflation expectations increase with age. Second, we find that measured inflation rates also increase with age, although age and inflation expectations continue to exhibit a positive correlation even after controlling for the household‐level inflation rate. Analysis suggests that the correlation between age and inflation expectations is driven largely by the correlation between cohort and inflation expectations, which we interpret to represent the effect of historical inflation experience on inflation expectations.