||The Formation of Consumer Inflation Expectations : Evidence From Japan's Deflation Experience
Diamond, Jess ,
Watanabe, KotaWatanabe, Tsutomu
JSPS Grants-in-Aid for Scientific Research (S) Understanding Persistent Deflation in Japan Working Paper Series
0852016-07 , UTokyo Price Project , Hitotsubashi University , CIGS and University of Tokyo , University of Tokyo
2012～2016年度科学研究費補助金[基盤研究(S)]「長期デフレの解明」(研究代表者 東京大学経済学研究科・渡辺努, 課題番号：24223003)
Using a new micro-level dataset we investigate the relationship between the inflation experience and inflation expectations of individuals in Japan. We focus on the period after 1995, when Japan began its era of deflation. Our key findings are fourfold. Firstly, we find that inflation expectations tend to increase with age. Secondly, we find that measured inflation rates of items purchased also increase with age. However, we find that age and inflation expectations continue to have a positive correlation even after controlling for the individual-level rate of inflation. Further analysis suggests that the positive correlation between age and inflation expectations is driven to a significant degree by the correlation between cohort and inflation expectations, which we interpret to represent the effect of historical inflation experience on expectations of future inflation rates.