TY  - UNPD
A1  - Goldfayn-Frank, Olga
A1  - Wohlfart, Johannes
T1  - How do consumers adapt to a new environment in their economic forecasting? Evidence from the German Reunification
T2  - Working paper series / Institute for Monetary and Financial Stability ; 129
N2  - Exploiting the natural experiment of the German reunification, we examine how consumers adapt to a new environment in their macroeconomic forecasting. We document that East Germans expect higher in inflation and make larger forecast errors than West
Germans even decades after reunification. Differences in consumption baskets, financial literacy, risk aversion or trust in the central bank cannot fully account for these patterns. We find most support for the explanation that East Germans, who were used to a strong norm of zero inflation, persistently overadjusted the level of their expectations in the face of the initial inflation shock in reunified Germany. Our findings suggest that large changes in the economic environment can permanently impede people's ability to form accurate macroeconomic expectations, with an important role for the interaction of old norms and new experiences around the event.
T3  - Working paper series / Institute for Monetary and Financial Stability - 129 
KW  - expectation formation
KW  - inflation
KW  - natural experiment
KW  - German Reunification
KW  - macroeconomic experiences
Y1  - 2018
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/48804
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30:3-488047
UR  - https://www.imfs-frankfurt.de/de/forschung/imfs-working-papers.html
PB  - Johann Wolfgang Goethe-Univ., Inst. for Monetary and Financial Stability
CY  - Frankfurt am Main
ER  -