BPEA | Spring 2016

Learning from potentially-biased statistics: Household inflation perceptions and expectations in Argentina

Alberto Cavallo,
Alberto Cavallo Edgerley Family Associate Professor of Business Administration - Harvard Business School
Guillermo Cruces, and
Guillermo Cruces Center for Distributive, Labor, and Social Studies, CONICET, and IZA
Ricardo Perez-Truglia
Ricardo Perez-Truglia Microsoft Research
Discussants: Stefan Nagel and
Stefan Nagel Stanford University
Ricardo Reis
Ricardo Reis headshot
Ricardo Reis A. W. Phillips Professor of Economics - London School of Economics and Political Science

Spring 2016

A new paper by Alberto Cavallo, Guillermo Cruces, and Ricardo Perez-Truglia studies how individuals in Argentina learn from potentially-biased inflation statistics. The authors suggest that rather than ignoring biased statistics or naively taking them at face value, households react in a sophisticated way. They also find evidence of an asymmetric reaction to inflation signals, with expectations changing more when the inflation rate rises than when it falls.

A view is seen of Argentina's Banco Central logo at its headquarters building in Buenos Aires October 16, 2013.


Consumers See Through Government Manipulation of Economic Data, Extract Useful Content

Argentina’s attempts to manipulate inflation data both ineffective and counterproductive

Rather than ignoring biased statistics or naively taking them at face value, households react to government economic data in a sophisticated way, effectively de-biasing the official data to extract all its useful content. Looking at Argentina, a country that suffered from high inflation and government manipulation of inflation data, the research finds that the government’s manipulating the aggregate price index or with targeted price controls was both ineffective and counterproductive. Examining inflation expectations in less extreme contexts than Argentina, such as the United States and Europe where experts may agree that statistics are unbiased but households do not, the research points out that 32 percent of Americans do not trust the government’s official inflation data, causing them to have higher inflation expectations.