Political bias in inflation expectations : a quantitative analysis of the Michigan Survey of Consumers

Lochbühler, Philipp

doi:10.21256/zhaw-29394

Please use this identifier to cite or link to this item: https://doi.org/10.21256/zhaw-29394

Publication type:	Master thesis
Title:	Political bias in inflation expectations : a quantitative analysis of the Michigan Survey of Consumers
Authors:	Lochbühler, Philipp
Advisors / Reviewers:	Seiberlich, Ruben Bachmann, Oliver
DOI:	10.21256/zhaw-29394
Extent:	52
Issue Date:	2023
Publisher / Ed. Institution:	ZHAW Zürcher Hochschule für Angewandte Wissenschaften
Publisher / Ed. Institution:	Winterthur
Language:	English
Subject (DDC):	332: Financial economics
Abstract:	This thesis investigates the partisan bias in inflation expectations among survey respondents of the University of Michigan Survey of Consumers over the period January 2006 – March 2023. The study reveals that individuals who support the party holding the presidency tend to expect lower inflation rates, while supporters of the opposing party generally anticipate higher inflation rates compared to those with no specific party affiliation. The analysis highlights that this partisan bias is more pronounced among strong affiliates of the Republican or Democratic party. Furthermore, the bias is generally stronger during a supportive party's presidency compared to the bias toward higher inflation expectations during an opposing party's presidency. These findings suggest that political affiliation has a substantial influence on inflation expectations, with partisan bias playing a significant role. Additionally, the analysis provides evidence that the partisan bias in inflation expectations is influenced not only by the presidency but also by the majority distribution in the legislative chambers. When one party has full control of both chambers and the presidency, regression coefficients from both strong and weak political affiliates point to a higher bias compared to periods where the party opposing the president hold the majority in at least one legislative chamber. To disentangle the difference in inflation expectations, a Blinder-Oaxaca decomposition method is deployed. The decomposition results demonstrate that, during periods when the partisan theory holds, a statistically significant portion of the difference in inflation expectations between strong Republicans and strong Democrats, as well as overall Republicans and Democrats, cannot be explained by differences in individuals' characteristics. This suggests that the bias is inherently tied to political ideology rather than solely driven by personal attributes. Additionally, the findings indicate a considerable increase in the overall bias in inflation expectations in recent legislative periods. Understanding and acknowledging the presence and the dynamics of partisan bias in inflation expectations is crucial for economic decision-making, policy formulation, and fostering informed public discourse.
URI:	https://digitalcollection.zhaw.ch/handle/11475/29394
License (according to publishing contract):	CC BY-NC-ND 4.0: Attribution - Non commercial - No derivatives 4.0 International
Departement:	School of Management and Law
Appears in collections:	MSc Banking and Finance

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Lochbühler, P. (2023). Political bias in inflation expectations : a quantitative analysis of the Michigan Survey of Consumers [Master’s thesis, ZHAW Zürcher Hochschule für Angewandte Wissenschaften]. https://doi.org/10.21256/zhaw-29394

Lochbühler, P. (2023) Political bias in inflation expectations : a quantitative analysis of the Michigan Survey of Consumers. Master’s thesis. ZHAW Zürcher Hochschule für Angewandte Wissenschaften. Available at: https://doi.org/10.21256/zhaw-29394.

P. Lochbühler, “Political bias in inflation expectations : a quantitative analysis of the Michigan Survey of Consumers,” Master’s thesis, ZHAW Zürcher Hochschule für Angewandte Wissenschaften, Winterthur, 2023. doi: 10.21256/zhaw-29394.

LOCHBÜHLER, Philipp, 2023. Political bias in inflation expectations : a quantitative analysis of the Michigan Survey of Consumers. Master’s thesis. Winterthur: ZHAW Zürcher Hochschule für Angewandte Wissenschaften

Lochbühler, Philipp. 2023. “Political Bias in Inflation Expectations : A Quantitative Analysis of the Michigan Survey of Consumers.” Master’s thesis, Winterthur: ZHAW Zürcher Hochschule für Angewandte Wissenschaften. https://doi.org/10.21256/zhaw-29394.

Lochbühler, Philipp. Political Bias in Inflation Expectations : A Quantitative Analysis of the Michigan Survey of Consumers. ZHAW Zürcher Hochschule für Angewandte Wissenschaften, 2023, https://doi.org/10.21256/zhaw-29394.