Date of Award
Bachelor of Arts
This paper utilizes data from Federal Reserve Economic Data (FRED) to investigate the determinants of consumers' inflation expectations. I employ a series of OLS models to test the effect of various goods’ prices on consumers' inflation expectations, as measured by the Michigan Survey of Consumers, as well as the effects of monetary policy and previously observed inflation. My results indicate that energy prices have a positive statistically significant effect on consumers' inflation expectations, while previously observed inflation has no statistically significant effect. Furthermore, I find that adjustments to the federal funds rate and the recent implementation of inflation targeting do not appear to anchor consumers' inflation expectations. These findings suggest that the theory of rational expectations cannot be applied to consumers' inflation expectations.
Mobilia, Luca, "Failure at the Fed: A Study of the Determinants of Consumers' Inflation Expectations" (2017). Economics Student Theses and Capstone Projects. 28.