Political Attitudes and Inflation Expectations: Evidence and Implications

Abstract

We show that for the United States and Australia consumers expect significantly lower inflation when the political party they support holds executive office. This finding cannot be explained by previously documented sources of heterogeneity in consumer inflation expectations. It is consistent with stereotypical thinking (Bordalo et al. 2016), pointing to the use of heuristics in the formation of macro-economic beliefs. Our findings have implications for consumers' understanding of central bank independence and its connection with inflation stabilization.