Disagreements in Consumer Inflation Expectations: Empirical Evidence for a Latin American Economy

Abstract

In this study, the Internet is considered an important source of information used by consumers to form inflation expectations. Based on this idea, this study investigates the effects of word searches related to the central bank, market basket, and living cost on disagreements in consumer expectations. The case of Colombia is analyzed because it is a small emerging economy under inflation targeting policy that conducts surveys to monitor consumer expectations. The methodology consists of using search volume indices on the Google Trends platform to identify effects on expectation disagreement. The econometric results of this study show that information found by consumers on Google can reduce disagreements in inflation expectations. Consequently, the main policy recommendation is that the Central Bank of Colombia should augment the communication it provides to the public through various digital platforms, as a method to anchor expectations.