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25-10-2019

Partisan bias in inflation expectations

Authors: Oliver Bachmann, Klaus Gründler, Niklas Potrafke, Ruben Seiberlich

Published in: Public Choice | Issue 3-4/2021

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Abstract

We examine partisan bias in inflation expectations. Our dataset includes inflation expectations of the New York Fed’s Survey of Consumer Expectations over the period June 2013 to June 2018. The results show that inflation expectations were 0.46% points higher in Republican-dominated than in Democratic-dominated US states when Barack Obama was US president. Compared to inflation expectations in Democratic-dominated states, inflation expectations in Republican-dominated states declined by 0.73% points when Donald Trump became president. We employ the Blinder–Oaxaca decomposition method to disentangle the extent to which political ideology and other individual characteristics predict inflation expectations: around 25% of the total difference between inflation expectations in Democratic-dominated versus Republican-dominated states is based on how partisans respond to changes in the White House’s occupant (partisan bias). The results also corroborate the belief that voters’ misperceptions of economic conditions decline when the president belongs to the party that voters support.

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Source: Survey of Consumer Expectations, © 2013–2018 Federal Reserve Bank of New York (FRBNY). The SCE data are available without charge at http://www.newyorkfed.org/microeconomics/sce and may be used subject to license terms posted there. The FRBNY disclaims any responsibility or legal liability for the present analysis and our interpretation of Survey of Consumer Expectations data.

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Title: Partisan bias in inflation expectations
Authors: Oliver Bachmann
Klaus Gründler
Niklas Potrafke
Ruben Seiberlich
Publication date: 25-10-2019
Publisher: Springer US
Published in: Public Choice / Issue 3-4/2021
Print ISSN: 0048-5829
Electronic ISSN: 1573-7101
DOI: https://doi.org/10.1007/s11127-019-00741-0

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