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  • Brookings Papers on Economic Activity

Learning from Potentially Biased Statistics: Household Inflation Perceptions and Expectations in Argentina

By: Alberto Cavallo, Guillermo Cruces and Ricardo Perez-Truglia
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Abstract

When forming expectations, households may be influenced by perceived bias in the information they receive. In this paper, we study how individuals learn from potentially biased statistics using data from both a natural experiment and a survey experiment during a period (2007–15) when the government of Argentina was manipulating official inflation statistics. This period is interesting because attention was being given to inflation information and both official and unofficial statistics were available. Our evidence suggests that, rather than ignoring biased statistics or naively accepting them, households react in a sophisticated way, as predicted by a Bayesian learning model. We also find evidence of an asymmetric reaction to inflation signals, with expectations changing more when the inflation rate rises than when it falls. These results could also be useful for understanding the formation of inflation expectations in less extreme contexts than Argentina, such as the United States and Europe, where experts may agree that statistics are unbiased but households are not.

Keywords

Inflation Expectations; Bayesian Estimation; Inflation and Deflation; Information; Household; Behavior; Argentina

Citation

Cavallo, Alberto, Guillermo Cruces, and Ricardo Perez-Truglia. "Learning from Potentially Biased Statistics: Household Inflation Perceptions and Expectations in Argentina." Brookings Papers on Economic Activity (Spring 2016): 59–108.

Supplemental Information

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About The Author

Alberto F. Cavallo

Business, Government and the International Economy
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