Tell Me Something I Don't Already Know: Learning in Low- and High-Inflation Settings
What this paper finds — and why it matters
This paper uses randomized control trials (RCTs) applied over time in multiple countries to study whether the economic environment — specifically the level of inflation — affects how agents learn from new information. The main finding is that as inflation rose in advanced economies, both households and firms became more attentive to and informed about publicly available news about inflation, causing them to respond less to exogenously provided information about inflation and monetary policy in the RCT treatments. When agents are already well-informed about the current inflation environment (because high inflation makes it salient), additional information provision moves their beliefs less — the marginal value of information is decreasing in prior attentiveness. Complementary evidence from Uruguay (persistently high inflation) and New Zealand (persistently low inflation) confirms the cross-sectional pattern: agents in high-inflation environments have stronger priors and respond less to information treatments. The results imply that central bank communication interventions are more effective during low-inflation periods when agents are less informed.
Summary of a forthcoming paper, AI-assisted and human-reviewed. See the linked original for the authoritative claims and full conditions.
Q1. How does the RCT design identify the effect of the inflation environment?
The paper exploits the within-country time variation in inflation — running comparable RCT information treatments before, during, and after the 2021-2023 surge in multiple countries — to identify whether the same information treatment has different effects depending on the prevailing inflation level. By holding the content of the information treatment constant and varying the macroeconomic environment, the paper isolates how environment-driven changes in agent attentiveness mediate the treatment effect.
Q2. Why do agents respond less to information when inflation is high?
When inflation is high and salient, agents actively monitor publicly available inflation news, reducing their prior uncertainty; the Bayesian posterior shift from a given information signal is smaller when the prior is more concentrated. This mechanism — decreasing marginal value of information with prior precision — means that information provision campaigns are subject to diminishing returns as the macroeconomic environment itself provides more signal.
Q3. What does this imply for central bank communication strategy?
Central bank forward guidance and information campaigns are most effective when agents have diffuse priors — i.e., during periods of low, stable inflation when inflation is not salient to households and firms. During high-inflation episodes, agents become more sophisticated but also more resistant to updating on any individual information signal, making communication a weaker tool precisely when the inflation challenge is most acute.
Key concepts
prior attentiveness : the degree to which agents actively monitor publicly available information about inflation; the paper shows this rises with inflation level, reducing the marginal value of additional information provided by RCT treatments.
decreasing marginal value of information : the property that additional information moves beliefs less when agents already have precise priors; the mechanism explaining why RCT treatment effects are smaller in high-inflation environments.