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Inflation Literacy, Inflation Expectations, and Trust in the Central Bank: A Survey Experiment

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  • Dräger, Lena
  • Nghiem, Giang

Abstract

This paper studies the causal effect of inflation literacy on inflation expectations and trust in the central bank using a randomized control trial (RCT) on a representative sample of the German population. In an experiment with two steps, we first test the effect of non-numerical information about inflation and monetary policy, the \textitliteracy treatment. In the second step, we randomly treat respondents with quantitative information and measure whether those who previously received the \textitliteracy treatment, incorporate quantitative information differently into their inflation forecasts. We find that the \textitliteracy treatment improves respondents' knowledge about monetary policy and inflation and raises their trust in the central bank. It also causes a higher likelihood that respondents provide inflation predictions, but does not affect the level of expected inflation. Similarly, those who received the initial \textitliteracy treatment do not react differently to the quantitative information in terms of the level of their inflation forecasts, but they react more strongly to some treatments regarding their reported forecast uncertainty and trust in the central bank.

Suggested Citation

  • Dräger, Lena & Nghiem, Giang, 2023. "Inflation Literacy, Inflation Expectations, and Trust in the Central Bank: A Survey Experiment," Hannover Economic Papers (HEP) dp-709, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    • Handle: RePEc:han:dpaper:dp-709
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    Cited by:

    1. Dräger, Lena, 2023. "Central Bank Communication with the General Public," Hannover Economic Papers (HEP) dp-713, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    2. Dräger, Lena & Dalloul, Ami & Nghiem, Giang, 2024. "Anchoring Household's Inflation Expectations when Inflation is High," VfS Annual Conference 2024 (Berlin): Upcoming Labor Market Challenges 302397, Verein für Socialpolitik / German Economic Association.

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    More about this item

    Keywords

    Inflation literacy; inflation expectations; trust in the central bank; survey experiment; randomized control trial (RCT);
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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