Households Forming Inflation Expectations: Active and Passive Absorption Rates

Abstract

Recent research has established that households absorb from professional forecasters as they form their inflation expectations. Professionals forecasts are transmitted, or absorbed, throughout the population slowly but eventually. This provides the microfoundations for sticky information expectations. Using a unique survey-based dataset for the UK that distinguishes between professional and non-professional forecasts and where the former is further categorize by occupations, the present paper attempts to identify the professional forecaster. The paper also considers whether absorption rates take place heterogeneously amongst the absorbing agents. We identify active and passive absorbers amongst the agents and they are distinguished by their respective absorption rates. The present analyses also consider whether these absorption rates are non-linear.