Communication and the Beliefs of Economic Agents / Bernardo Candia, Olivier Coibion, Yuriy Gorodnichenko.

Format:

Book

Author/Creator:

Candia, Bernardo.

Contributor:

National Bureau of Economic Research.

Coibion, Olivier.

Gorodnichenko, Yuriy.

Series:

Working Paper Series (National Bureau of Economic Research) no. w27800.

NBER working paper series no. w27800

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2020.

Summary:

New surveys provide a wealth of information on how economic agents form their expectations and how those expectations shape their decisions. We review recent evidence on how changes in macroeconomic expectations, particularly inflation expectations, affect households' and firms' actions. We show that the provision of information about inflation to households and firms can sometimes backfire in terms of their subsequent decisions. Whether or not this is the case hinges on how individuals interpret the news about inflation: supply-side interpretations ("inflation is bad for the economy") lead to negative income effects, which can depress economic activity. We show that households in advanced economies, unlike professional forecasters, typically have such a supply-side interpretation, as do many firms. New communication strategies could avoid public misinterpretation of policy decisions.

Notes:

Print version record

September 2020.