House price expectations and inflation expectations: evidence from survey data

Working paper

Housing is a closely monitored and prominent sector for households. We find that households tend to overweight house price expectations when forming inflation expectations with a coefficient of 25–45 percent, significantly above the weight of house prices in the inflation index. We first use two datasets, a multitude of controls, and an instrumental variable approach to address endogeneity. We then use a second strategy based on household heterogeneity. As expected, we find a significant effect of cognitive abilities and whether households moved house recently. We model this household behavior in a two-sector New Keynesian model with an overweighted and a non-overweighted sector and show that overweighted sectors are disproportionately more important for monetary policy.

Authors: Dhamija, V; Nunes, R; Tara, R

• Publication status: Published
• Publisher: University of Oxford
• Series: Department of Economics Discussion Paper Series
• Publication date: 2025-01-30
• Paper number: 1069
• Language: English
• Keywords: monetary policy; inflation expectations; house price expectations; salience