How to Limit the Spillover from an Inflation Surge to Inflation Expectations?

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Abstract

We study the effects of forward looking communication in an environment of rising inflation rates on German consumers’ inflation expectations using a randomized control trial. We show that information about rising inflation increases short-and long-term inflation expectations. This initial increase in expectations can be mitigated using forward looking information about infla-tion. Among these information treatments, professional forecasters’ projections seems to reduce inflation expectations by more than policymaker’s characterization of inflation as a temporary phenomenon.