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  • P-ISSN 1738-656X
  • E-ISSN 2586-4130

KDI Journal of Economic Policy. Vol. 37, No. supplementary, March 2015, pp. 33-63

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Korean Households’ Inflation Expectations and Information Rigidity

Hangyu Lee; Jinho Choi

Author & Article History

Manuscript received 05 August 2014; revision received 11 August 2014; accepted 07 February 2015.


This paper attempts to investigate the Korean households’ inflation expectations with particular attention to information rigidity. For this purpose, we derive an empirical model from a sticky information model á la Mankiw and Reis (2002) and estimate it. In addition, it is also examined whether the expectation formation is state-dependent on macroeconomic conditions. The main findings of this paper are as follows. First, it turns out that the information rigidity in Korean households’ inflation expectations is very high. In a month, most of the households simply keep their inflation expectations the same as before instead of updating them based on newly arrived information. Furthermore, when updating their expectations, the households tend to rely on the backward-looking information such as actual inflation rates in the past rather than on the forward-looking forecasts by experts. Second, it is found that the expectation formation is varying as inflation rate changes. Specifically, when the inflation is high, the sensitivity of the households’ inflation expectations to actual inflation increases and the gap between inflation expectations and actual inflation shrinks. It implies that Korean households update their expectations more frequently when the inflation matters than not.


일반인 인플레이션 기대, 정보경직성, 상태의존성, Households’, Inflation Expectations, Information Rigidity, State-Dependence

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