- Households in Suriname adjusted their expectations about both inflation and exchange rates when they received expert forecasts, showing that new information can meaningfully shift how people view the economy.
- These shifts in expectations can matter beyond the immediate response to new information, influencing household decisions well after the forecasts are received.
- The effects were still visible two years later: households exposed to the forecasts owned fewer tradable durable goods, particularly consumer electronics, as concluded in a recent IDB study.
In small open economies, households often experience macroeconomic instability through the prices they pay every day. When many consumer goods are imported, exchange-rate depreciation can quickly feed into domestic prices. This is why inflation and exchange rates are often closely connected in people’s economic lives.
Yet much of the evidence on household expectations has examined inflation beliefs in isolation. We know less, for example, about whether households understand the link between exchange rates and prices, whether information about one changes expectations about the other, and—crucially—whether those expectations ultimately shape real economic decisions.
A recent Inter-American Development Bank (IDB) study, Learning about Inflation and Exchange Rates: Beliefs and Consumer Behavior in a Small Open Economy, examines these questions through a randomized information experiment in Suriname. The study looks at how households revise their expectations about inflation and exchange rates after receiving expert forecasts—and whether the effects extend beyond beliefs to later economic behavior.
Why These Expectations Matter
In economies like Suriname, where households have experienced significant inflation and currency depreciation, macroeconomic communication may do more than inform people about future prices. If households interpret forecasts as signals about broader economic conditions, they may adjust both how they prepare for the future and the decisions they make today.
More broadly, studying these responses can help policymakers understand how households connect different signals about the economy—and how those beliefs translate into economic behavior.
What Did the Study Find?
To answer these questions, the study used a randomized information experiment with participants drawn from a nationally representative survey in Suriname. In 2020, individuals were randomly assigned to three groups: one received expert forecasts about future inflation; another received forecasts about both inflation and exchange-rate depreciation; and a third received no information and served as the control group. Household beliefs were then measured and linked to follow-up data on asset holdings two years later.
The study uncovered several key findings:
• Significant Initial Misperceptions: At the beginning of the study, households significantly underestimated both future inflation and exchange rate depreciation. On average, respondents expected inflation to be 25 percentage points lower than expert forecasts, and many incorrectly expected the local currency to appreciate rather than depreciate.
• Learning Across Inflation and Exchange Rate Expectations: Households that were provided with expert forecasts substantially revised their expectations upward. The results also show evidence of cross-learning across variables. Households that received information on both inflation and exchange-rate depreciation increased their inflation expectations by 23 percentage points, compared with 13 percentage points among households that received information on inflation alone (Figure 1). This suggests that households viewed exchange-rate depreciation as relevant for future prices, consistent with the close link between exchange-rate movements and consumer prices in small open economies.
• Impact on Household Durable Goods: The information did more than just change beliefs; it changed economic behavior, but not in the direction standard economic theory would predict. Instead, the opposite pattern was still visible two years later: households exposed to the forecasts owned fewer tradable durable goods, particularly consumer electronics.
• Interpreting the Behavioral Response: The study found no similar effects on employment, income, financial resilience, or leverage. This may indicate that the decrease in durable good holdings was not driven by worsening household finances. A more plausible interpretation is that households viewed forecasts of high inflation and currency depreciation as signals of a broader macroeconomic downturn, leading them to reduce or postpone purchases of tradable durable goods as a precaution against difficult economic times.
So, What Does This Mean for Policymakers?
The study shows that households learn from expert macroeconomic forecasts when forming expectations about the future. Importantly, those expectations do not appear to be formed in isolation: information about exchange-rate depreciation can also affect beliefs about inflation.
In economies like Suriname, this interaction is especially relevant because exchange-rate movements and domestic prices are closely linked. Households may therefore use information about one variable to draw broader conclusions about future economic conditions.
For policymakers, this means that inflation and exchange-rate expectations may not be best understood as entirely separate beliefs in macroeconomic models or communication strategies. Information about one can influence how households interpret the other.
Beyond Expectations: From Beliefs to Real-World Choices
More broadly, the findings suggest that macroeconomic communication can shape not only what households expect about the future, but also how they respond to perceived economic risks.
Understanding these channels may help policymakers better anticipate how households react to information about inflation and exchange-rate developments.
The study featured in this blog, Learning about Inflation and Exchange Rates: Beliefs and Consumer Behavior in a Small Open Economy, was coauthored with Diego A. Vera-Cossio and Jeetendra Khadan, whose contributions played an important role in the research presented here.