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  1. Consumption categories, household attention, and inflation expectations
    implications for optimal monetary policy
    Autor*in: Dietrich, Alexander M.
    Erschienen: 2023
    Verlag:  Eberhard Karls Universität Tübingen, Faculty of Economics and Social Sciences, Tübingen

    What inflation measure should central banks target? This paper shows optimal monetary policy targets headline inflation if households pay limited attention to different consumption categories when forming inflation expectations. This result stands in... mehr

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    Standort:
    ZBW - Leibniz-Informationszentrum Wirtschaft, Standort Kiel
    Signatur:
    DS 278
    Fernleihe:
    keine Fernleihe

     

    What inflation measure should central banks target? This paper shows optimal monetary policy targets headline inflation if households pay limited attention to different consumption categories when forming inflation expectations. This result stands in contrast to standard rational expectations models, where optimal policy targets core inflation. The core inflation rate excludes volatile energy and food prices (non-core) from headline inflation. Using novel survey data on inflation expectations for disaggregated consumption categories, I find household expectations are disproportionately driven by beliefs about future non-core prices. I develop a sparsity-based rational inattention model to account for the empirical evidence. While forming inflation expectations, households pay attention to the volatile non-core components; the stable core inflation component receives little attention. Finally, I embed this framework into a multi-sector New Keynesian model to derive the optimal inflation target. In the model, targeting headline inflation is optimal, whereas a core inflation target would fail to stabilize the economy sufficiently.

     
    Export in Literaturverwaltung   RIS-Format
      BibTeX-Format
    Quelle: Verbundkataloge
    Sprache: Englisch
    Medientyp: Buch (Monographie)
    Format: Online
    Weitere Identifier:
    hdl: 10900/138351
    hdl: 10419/271522
    Schriftenreihe: University of Tübingen working papers in business and economics ; no. 157
    Schlagworte: Households expectations; Survey; Monetary policy; Behavioral macroeconomics
    Umfang: 1 Online-Ressource (circa 67 Seiten), Illustrationen