Inflation Literacy, Inflation Expectations, and Trust in the Central Bank: A Survey Experiment

Central banks are increasingly communicating with the public to build trust and to guide and anchor inflation expectations in the population by explaining monetary policy decisions. However, many consumers struggle with understanding the concept of inflation and how monetary policy works. Given this context, would it be possible to improve public literacy about inflation and monetary policy by communicating simple and general information about these topics? And would improving consumers' inflation literacy affect their inflation forecasts and affect the way they incorporate quantitative information into their expectations?
We study these questions in a survey experiment with a representative sample of German consumers, who are randomly subjected to two consecutive information treatments: In the first step, half of the respondents are randomly selected to receive a 1-minute reading text with general non-numerical information about inflation and monetary policy. We then ask all respondents some test questions to measure inflation and financial literacy as well as their point predictions on perceived and expected inflation and the inflation target of the ECB.
In the second step, we randomly split the population into five groups. One group acts as a control group with no further information, while the other groups receive additional numerical information treatments on inflation and monetary policy. We then use probabilistic questions to measure posterior perceived and expected inflation and individual forecast uncertainty. Our survey is completed with questions on trust in the ECB and the Bundesbank. This two-step setup allows us to evaluate, first, the causal effect of the literacy treatment on consumers' literacy, their prior inflation predictions, and their trust in the central bank, and second, to investigate how consumers incorporate the quantitative information treatments into posterior inflation predictions, forecast uncertainty as well as trust and whether there are interaction effects with the literacy treatment.