Inflation is recently a salient topic among voters and policymakers. FiveThirtyEight/Ipsos conducted six polls from April to October 2022 and voters rated inflation as the country's most critical issue. Voters aren't the only individuals concerned about inflation. Policymakers are also concerned about inflation and inflation expectations. The Federal Reserve is raising interest rates at an unprecedented rate to control inflation. The Federal Reserve actively monitors long-term inflation expectations to ensure they remain anchored. Therefore, our research sets out to determine if low-cost informational nudges (narratives) on climate change have a causal effect on household inflation expectations. We investigate how households update their inflation expectations in response to low-cost informational nudges (narratives). We use economic and political narratives centered around climate change. We construct our economic narratives on the premise that climate change puts upward pressure on grocery prices. We include the political narrative because one's political affiliation, conditional on the party that controls the presidency, biases inflation expectations (Bachmann et al. 2019; Gillitzer, Prasad, and Robinson 2021). We include inflation statistics from the Survey of Professional Forecasters to control for the extremeness individuals may have when using specific prices to form their inflation expectations (Bruine de Bruin, van der Klaauw, and Topa 2011). We apply an information provision experiment to US households using Prolific, an online survey platform. We measure their pre-treatment and post-treatment inflation expectations to determine if our narratives influence household inflation expectations. Our contribution is we seek to determine if climate change narratives influence household inflation expectation formation. We also contribute to the literature on personal experiences having a causal effect on inflation expectations. We contribute to the role that communication has on household inflation expectations. Politicians and policymakers stand to benefit from a better understanding of how voters form their inflation expectations because they can better tailor their economic messaging.
University / Institution: University of Utah
Format: In Person
SESSION C (1:45-3:15PM)
Area of Research: Social Sciences
Faculty Mentor: Josh McCrain