Forthcoming in AEJ: Macroeconomics: "Identifying the Impact of Inflation Expectations" by William A. Branch.
(Forthcoming Article) - Individuals form inflation expectations based on their demographics
and locations. Different demographic groups respond differently
to sectoral price changes, which we exploit to identify the inflationary
impact of expectations. Our shift-share instrument combines
national expectations of demographic groups with these groups’ regional
population shares. A one-percentage-point rise in expected
inflation increases regional inflation by 60 basis points. Long-run
expectations (5–10 years) have negligible effects. The estimates are
most robust for younger, married individuals with at least a high
school diploma, whose expectations mainly influence non-durable
goods prices.
