Essays in empirical macroeconomics

This dissertation is going to empirically study household inflation expectations and inflation. Inflation expectations and inflation play a central role in economic dynamics. For example, when households expect future price increases, households will try to purchase goods now than later at higher prices which is eventually going to push prices even higher. Chapter 1 contributes to the literature on inflation expectations by showing a channel that can significantly bias the central banks' aggregate inflation expectations measures. This chapter is joint work with Carola Binder. We show that when inflation expectations surveys rely on repeat survey participants, survey participation itself may affect future responses. Because the central bank's survey asks about future prices and inflation, it prompts information acquisition between survey waves for survey respondents. These "Learning-through-Survey" effects are particularly large for household inflation expectations. For example, after participating twelve consecutive times in the SCE, respondents end up with a 2.6 percentage point lower inflation forecast and 34% lower inflation uncertainty on average than in the first interview, with most of the decline happening in the first two months of participation. Consequently, repeat participants may be more informed, and not be representative of the broader population of the economy. Chapter 2 estimates three components of household inflation expectations of the SCE using a dynamic factor model: Common, Learning, and Long-run factor. Using the estimated common inflation expectation factor shared by all survey participants, I recover the household inflation expectations less the learning effect of the SCE without discarding repeat survey participants' data which could have been wasteful otherwise. It successfully corrects for the bias due to the learning effects of repeat survey participants and is significantly less noisy than the raw data. In addition, the estimated learning factor and long-run factor of inflation expectations suggest that inflation expectations of households are largely influenced by news coverage on inflation and oil prices. Finally, Chapter 3 studies the product life cycle effects on prices and inflation inequality in the U.S. The annual inflation rate of lower-income households has been higher than that of higher-income households in general, a finding termed in extensive literature as "inflation inequality." Using barcode-level retail sales data and household spending data in the U.S, I show that the product life cycle channel can account for a significant portion of this inflation inequality among households. The prices of new products are initially high but steadily decrease after then as it goes out of fashion. Because rich households tend to be early adopters preferring new goods to old goods, those rich early adopters experience a sharp price decrease or lower inflation than poor late-adopters who buy goods when the price decreasing phase has stopped or got less steep.