Inflation Perceptions


Alex Tabarrok, cites a Bill Goss survey (PDF) on economic misperceptions: “When asked about the inflation rate over the last year (survey was in 2009) the median student guessed 11%. Actual rate: much closer to 0%. Note, how important such misconceptions could be to policy.”

I don’t like to be mysterious, so I’ll just spell it out. This misperception makes it politically difficult for policymakers to say “the inflation rate needs to be temporarily higher and I intend to make that happen” yet it’s exceedingly difficult for a large economy with zero percent nominal interest rates to experience healthy growth absent a credible commitment along those lines.