NEW INFORMATION AND UPDATING OF MARKET EXPERTS' INFLATION EXPECTATIONS

This paper investigates how the disclosure of new information regarding the recent behavior of inflation affects inflation expectations. Using a panel of more than 100 professional forecasters and the release of a signal about the inflation rate to identify the effects, we find that new information leads individual forecasters to update their expectations immediately. However, the parameter is not very high, which is consistent with sticky information and staggered updating of expectations. The precision of new information matters as well: when precision increases, agents put more weight on the piece of information received, which is consistent with Morris and Shin's (2002) model. These results are found to be robust, and absent in placebo regressions. Finally, estimates suggest that the magnitude of the update depends on the distance between the signal that agents receive and their current expectations