Korea Households' Inflation Expectations and Information Rigidity (in Korean)

Hangyu Lee () and Jinho Choi
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Hangyu Lee: Macroeconomics Team, Economic Research Institute, The Bank of Korea

No 2014-23, Working Papers from Economic Research Institute, Bank of Korea

Abstract: This paper attempts to investigate the Korean households' inflation expectations with particular attention to information rigidity. For this purpose, it derives an empirical model from a sticky information model a la Mankiw and Reis (2002) and estimates it. In addition, it is also examined whether the degree of information rigidity is state-dependent on macroeconomic conditions. The main findings of this paper are as follows. First, it turns out that the information rigidity in Korean households’ inflation expectations is very high. In a month, most of the households simply keep their inflation expectations the same as before instead of updating them based on newly arrived information. Furthermore, when updating their expectations, the households tend to rely on the backward-looking information such as actual inflation rates in the past rather than on the forward-looking forecasts by experts. Second, it is found that the degree of information rigidity is varying as inflation rate changes. Specifically, when the inflation is high, the sensitivity of the households' inflation expectations to actual inflation increases and the gap between inflation expectations and actual inflation shrinks. It implies that Korean households update their expectations more frequently when the inflation matters than not.

Keywords: Households' Inflation Expectation; Information Rigidity; State-Dependence (search for similar items in EconPapers)
JEL-codes: D84 E31 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2014-08-06
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Citations: View citations in EconPapers (2)

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