Inflation Expectations and Relatable Narratives

Communication around inflation has become a central focus in both economic research and policy, as managing inflation expectations is critical for effective monetary policy. Despite intensified efforts by central banks to inform the public, recent studies show that standard information treatments often have limited success, particularly when targeting medium-term expectations or audiences with low financial literacy (Cavallo et al., 2017; Coibion et al., 2022; Nghiem et al., 2024). While financial markets typically absorb central bank messages efficiently, reaching the broader public remains a challenge (Blinder et al., 2024). One potentially approach, emphasized by Shiller (2019) and Harari (2018), is the use of narratives - relatable and emotionally appealing stories that may foster deeper engagement and retention of economic information. This project aims to investigate whether narratives are more effective than standard quantitative or qualitative inflation information in shaping households’ inflation expectations. Furthermore, we aim to examine whether framing macroeconomic developments in the form of relatable stories enhances the persistence of belief updates, particularly among individuals with limited financial knowledge. This study will address a gap in the literature by examining the impact of emotionally engaging narrative communication on non-expert audiences and will offer policy-relevant insights into how central banks can enhance the effectiveness of their outreach to the general public.