2024/07/01 by Dmitry Taubinsky, Luigi Butera, Matteo Saccarola +1 · 1 voice · 3 citations
Economics, Econometrics and Finance · #Demographic economics #Economics #Market Dynamics and Volatility #Monetary Policy and Economic Impact #Statistics #Survey data collection
paper · doi:10.1093/qje/qjag032
published in The Quarterly Journal of Economics (Oxford University Press)
openalex publication_date 2024/07/01 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/16
Abstract We study how people’s beliefs about the economy covary with household-level events, utilizing a unique link between Danish administrative data and a large-scale survey of consumer expectations. We find that compared to actual inflation, people’s inflation forecasts covary much more strongly (and negatively) with both recently realized household income changes and measures of expected future household income changes. We formally establish that these findings are stark deviations from the Bayesian rational expectations benchmark. Similar results hold for perceptions of past inflation (“backcasts” ), suggesting that imperfect recall is a key mechanism for biased forecasts. Building on this, a series of additional tests, some of which utilize data on adverse health events, suggests that the forecast biases are at least partly due to affect-cued recall. That is, negative (positive) household-level events cue negative (positive) recollections, which lead to pessimistic (optimistic) forecasts.