Manuel Mosquera-Tarrío
Learning Under Multiple Information Sets (paper)
Abstract: This paper analyses how individuals form inflation expectations under information uncertainty. Using evidence from a period with multiple public inflation statistics and an increase in relative price dispersion (Argentina, 2007-2011), I show that individuals use their own inflation experience--based on the change in prices of the goods they purchase--to form inflation expectations. More specifically, the inflation expectations of lower-income households, who experienced higher average household-specific rates of inflation, were higher. I characterize inflation experience by using daily (online) data on prices and expenditure information on roughly 25,000 households to construct household-specific price indexes. To disentangle the effect of information uncertainty from price dispersion, I model expectations through a Bayesian learner who knows signals can be noisy but also biased. Results suggest that, even in situations with a unique inflation statistic, inflation experience may affect economic decisions and outcomes if there are doubts about the quality of public information.
Underreaction of Expectations After Large Depreciations (paper)
New version coming soon.
Abstract: How do inflation expectations react to large depreciations? I document an underreaction in consensus inflation expectations following large depreciations. Underreaction increases with the average nominal exchange rate depreciation and, surprisingly, is more important in emerging than in advanced economies, both in the short and medium horizon. Results hold after controlling for other well-known predictors of inflation forecast errors. Moreover, when reactions to new available information are considered through forecast revisions, I find that: (i) recent support for models of information rigidities might not necessarily be extrapolated to emerging economies, where predictable overreactions in expectations exist irrespective of large depreciations, and (ii) baseline models of sticky and noisy information may be insufficient to explain deviations from full-information rational expectations under extreme events.
Work in Progress:
Inattention to Financial Information: The Role of Income (draft available upon request)
with Tanja Linta and Alena Wabitsch
Funded by a British Academy/Leverhulme Small Research Grant (2022/23)
Winner of the Joachim Herz Award 2022
Abstract: This paper studies how individuals make lifecycle consumption and savings choices when facing stochastic returns on their investments, and how they value information about these returns, conditional on their income. To address this question, we run a large-scale online experiment based on a permanent income model with stochastic interest rates. Two factors are randomized: prior availability of interest-rate information (exposure) and income (stakes). We measure information demand by willingness to pay and find that exposure to information increases demand only among high-income participants; when stakes are low, exposure has little effect. This finding suggests that individuals can learn to value information, but only when the stakes are sufficiently high. Heterogeneity in attention thus reflects not only processing costs but also variation in perceived benefits that scale with economic stakes, underscoring the limitations of central bank communication and financial literacy initiatives.
Whose Inflation Matters? Aggregate and Household-Specific Signals in Expectation Formation
with Angela Denis, Marina Gómez-García and Myroslav Pidkuyko
Abstract: Household decisions depend on expectations about future price changes, yet the relevant price object may differ across contexts. While macroeconomic models typically emphasize expectations about aggregate inflation, many decisions--such as consumption, saving, and expenditure reallocation--depend on expected changes in the prices of the goods and services households actually purchase. Despite growing evidence that households rely on idiosyncratic price experiences in forming aggregate inflation beliefs, little is known about how different information signals causally shape these two distinct types of expectations. We address this gap using a randomized controlled trial that provides households with either information on aggregate inflation (CPI) or a personalized measure of inflation constructed from their own expenditure shares. We study how each signal affects two distinct belief objects: expectations about aggregate inflation and expectations about the price changes of the goods and services households actually purchase. Our findings have implications for the transmission of monetary policy, the design of central bank communication, and macroeconomic models in which the relevant price deflator is heterogeneous across households.
On the Economic Effects of Droughts: A Historical Perspective
with Verónica Vienne
Information Frictions: The Biased-Channel