Persistence of Memory? Waning Experiences, Anchored Expectations

I reestimate a learning-from-experience model using survey reported inflation expectations and confirm that personal inflation experiences strongly predict inflation expectations. I use the model to study the effect of demographics and history on aggregate inflation expectations. Demographic shocks exert little effect on aggregate inflation expectations and population aging does not explain better anchoring of inflation expectations. On the other hand, high inflation in the 1970s raised and unanchored inflation expectations, an effect that surprisingly increased over time. The downweighting of past inflation experiences accounts for three-fifths of the better anchoring of inflation expectations during the Great Moderation. A sincere thank you to Prof. Ricardo Reis for advising this project. I thank Prof. Lena Edlund, my discussant, Evan Munro, and fellow writers in w4999 seminar. I also thank Keshav Dogra, Prof. Susan Elmes, Shaowen Luo, Prof. Serena Ng, and Prof. Daniel Rabinowitz for help in the process.