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Expectations of Inflation: The Role of Demographic Variables, Expectation Formation, and Financial Literacy
Author(s) -
BRUINE de BRUIN WÄNDI,
VANDERKLAAUW WILBERT,
DOWNS JULIE S.,
FISCHHOFF BARUCH,
TOPA GIORGIO,
ARMANTIER OLIVIER
Publication year - 2010
Publication title -
journal of consumer affairs
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.582
H-Index - 62
eISSN - 1745-6606
pISSN - 0022-0078
DOI - 10.1111/j.1745-6606.2010.01174.x
Subject(s) - inflation (cosmology) , financial literacy , economics , monetary economics , economic stability , inflation rate , rational expectations , literacy , interest rate , finance , macroeconomics , economic growth , theoretical physics , physics
When financial decisions have consequences beyond the immediate future, individuals' economic success may depend on their ability to forecast the rate of inflation. Higher inflation expectations have been reported by individuals who are female, poorer, single and less educated. Our results suggest that these demographic differences in inflation expectations may be partially explained by variations in expectation formation and financial literacy. Specifically, higher inflation expectations were reported by individuals who focused more on how to cover their future expenses and on prices they pay (rather than on the US inflation rate) and by individuals with lower financial literacy.