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

Research Seminar - Lena Dräger (Leibniz University Hannover)  - Inflation Literacy, Inflation Expectations, and Trust in The Central Bank: A Survey Experiment

Co-author: Giang Nghiem

Abstract:

This paper studies the causal effect of inflation literacy on inflation expectations using a randomized control trial (RCT) on a representative sample of the German population. We find that providing general and non-numerical information about inflation and monetary policy improves respondents' inflation literacy and their trust in the central bank relative to the control group. It also causes a higher likelihood that respondents provide inflation predictions, but does not affect the quantitative levels of the predictions. In the second step, respondents are randomly provided with different quantitative information treatments about inflation. Those who received the initial literacy 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. These findings suggest that general knowledge about inflation and monetary policy is relevant for inflation expectations via indirect factors such as uncertainty and trust.

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