Biblioteca

Abstract

Using a dataset that combines inflation expectations with social-network
connections, we show that expectations within an individual’s network positively influence personal beliefs. A one-percentage-point increase in the expectations of an exposed individual’s social network raises that person’s expectations by 0.549 percentage points relative to someone unexposed to social
networks. In a monetary-union New Keynesian model, socially determined
inflation expectations generate imperfect risk sharing and distort both regional
and aggregate dynamics. To limit the resulting welfare losses, monetary policy should assign substantially greater weight to inflation in regions whose
residents are more socially connected across the entire monetary union.