INFLATION EXPECTATIONS OF JAPANESE HOUSEHOLDS: MICRO EVIDENCE FROM A CONSUMER CONFIDENCE SURVEY

Economists agree that economic agents' expectations are crucially important in determining macroeconomic outcomes. However, mainstream macroeconomists usually simply assume that expectations are rational. Against this background, this study examines the properties of Japanese households' inflation expectations using micro-based inflation expectations data from the Monthly Consumer Confidence Survey Covering All of Japan. Our analyses show that actual inflation expectations by Japanese households are not rational in the sense that they are upward biased, and individual households appear not to instantaneously incorporate into their expectations information that is freely available from news reports on the views of professional forecasters.